The All Monies Mortgage Clause Explained
Did you know that:
The money in your bank account used for direct debits.
All money in your offset or redraw accounts.
Any funds due to you at settlement.
Any payments made in advance.
The bank can potentially keep it under the “All Monies Mortgage Clause”.
Yes, that’s right… all of it.
An “all monies clause” lets your lender use your home as security against any other debts you may have with that lender. For example, you have a mortgage with a lender. You then apply for a credit card with that same lender. If you then default on that credit card, your home could technically be at risk because that mortgage extends over to all debts you have with the lender/bank.
It’s quite common when you start out as a Property Investor to use the same bank you used for your home loan (PPR), for your property investment loans.
You know them, they know you – they have your savings, you use their credit cards, it’s all one log-in and easy to transfer money between accounts.
Sounds OK right? WRONG.
If you set up your lending like this you may encounter the All Monies Mortgage Clause. What this means is that all your money with the bank can be used to cover any shortfalls on any lending valuation you have with the bank.
So how do they do this?
They do it by what is commonly known as “cross-securitisation or cross-collateralization.”
What does this mean for you?
It means the bank will use equity in the higher valued property, often your own home, as the security to buy your next property. Sounds good doesn’t it as you don’t have to come up with as much money for a deposit.
BUT…. Here’s what you need to know,
Using this strategy, eventually, you get to a point where the bank will stop lending you money.
In extreme cases, like right now, when you sell one of your properties, the All Monies Clause lets your bank take proceeds of that sale and apply it to your other loans. They do this to decrease their liability so the bank has less financial risk by decreasing their exposure.
Know how to be safe with your money. Know when, what and how to cross securitize your portfolio safely OR better still, don’t do it at all.
The way you structure your finance and seeking professional help can put you in a position that you’re not at the mercy of the banks. The All Monies Mortgage Clause is just one of many things to watch out for when applying for a loan.
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