It restricts your borrowing capacity if you are interested in acquiring further loan facilities. I know it impacts the lender's internal credit scoring.
More importantly once loan facilities are cross-secured the lender has the ability to restrict the structure of of your loan facility, for example if you would like to move both facilities to interest only the lender can reject this. Also once you sell a security that is cross-secured the lender can advise that it will only release the security on the basis of X amount of the sale proceed be used to reduce the LVR on the other security.
Here is a scenario, assume the max LVR your lender will allow is 90%;
You have:
-property 1 worth 500k -property 2 worth 500k -a loan worth 900k (LVR of 90%)
property 1 increases in value by 50k and property two decreases by 50k.
Let's say you now want to use the increased equity in property 1 to buy another investment property. You go into the bank and ask for an equity release of 50k. The bank turn around and say 'unfortunately the LVR on your borrowings is 90% we cannot lend you any more money'. In this scenario you are unable to access the equity from property one as the equity in property two has decreased.
Also, your defaulting point is not completely true. If you sign a personal/unlimited guarantee then yes but this isn't always the case. There would be a dispute if you had two different properties with two different lenders as the lender trying to recoup their funds is not the mortgagor over the other property.
The most logical way to look at it, if it was advantageous for the customer, why would the bank be so eager to lock customers into these loan structures?
pencillin,
Redraw is fine as well. I'm not exactly sure as to what you are asking though with regards to the Line of credit facility?
