WHAT IS A CROSS-COLLATERAL MORTGAGE?
A cross-collateral mortgage simply refers to a mortgage that is secured against more than one real property. A cross-collateral mortgage serves as additional security to a lender who may otherwise not be willing to advance a loan on the security of a single property. A cross-collateral mortgage may also allow for lower interest rates as the lender would be granted additional security in the event of default. Generally, lower-risk investments are associated with lower interest rates. A cross-collateral mortgage comes with the disadvantage that now multiple real properties may be engaged for one loan. This means that, if possible, the borrower should avoid placing additional properties as collateral for a mortgage. When negotiating the terms of a cross-collateral mortgage, it may be advantageous for the borrower to negotiate upfront how much of the outstanding balance of the mortgage the lender would require to discharge the security on each of the properties. For example, if the principal amount of a mortgage is $1,000,000.00 registered against property A and property B, it should be clear in advance how much of the outstanding principal the lender would require to provide a discharge of the mortgage of either property. If you are planning to take out a cross-collateral mortgage on your properties, it is recommended to consult with an experienced real estate lawyer who can review the terms and conditions of the mortgage commitment to ensure you are adequately protected.
If you are a borrower looking to enter into a cross-collateralized mortgage transaction, contact us today to set up an initial consultation. Our real estate law team has the experience and knowledge to assist you throughout every step of the transaction.
Disclaimer: The information contained in this article is not to be construed as legal advice. The content is drafted and published only for the purpose of providing the public with general information regarding various real estate and business law topics. For legal advice, please contact us.
About the Author:
Shahriar Jahanshahi is the founder and principal lawyer at Jahanshahi Law Firm with a practice focus on representing business star-ups and investors in the province of Ontario. For further information about Shahriar Jahanshahi, click here.