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Home / Finance / Home Loan / What is cross collateralization meaning?
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What is cross collateralization meaning?

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Generic Home Loan
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0 2022-12-21T17:09:01+00:00

Hey,

All of us are aware of the fact that an asset is used as collateral to avail of a loan. This is usually how loans are given. Cars, homes, boats, stocks, and bonds have been used as security collateral. Now, you must be wondering how is cross collateralization different from standard loans. Keep reading, I'll answer the question below. 

Calculate EMI on home loan via the NoBroker EMI calculator. Get home loans without hefty paperwork through NoBroker Cross collateralization meaning:

When an asset used as collateral for the first loan is used as collateral for a second loan, it is known as cross-collateralization. Via this act, people can effectively leverage their pre-existing assets. Using cross collateralization has its advantages, it simplifies the loan process and offers borrowers a better interest rate. It gives tax benefits to the property owner. Investing in another property using equity, you might be able to make a tax claim. 

The clause is commonly seen in home loans. Eg. If I take out a second mortgage on my property, it will be known as cross-collateralization. The property will be used as security in the initial mortgage. The equity of the property will be used as collateral in the secondary mortgage. 

The loans involved in cross collateralization do not have to be the same type. Often, the loans are from the same bank/ financial institution. You can go through all the clauses of your loan contract to see your bank's terms and conditions of cross-collateralization. 

I hope my explanation has cleared your doubts.

Read more: How many home loans can one person have? What is a recourse loan ?     What is a non recourse loan ?     What is a mezzanine loan ?  

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