What is cross collateralization?
When collateral for one loan serves as collateral for other loans as well, it is called cross collaterization. The most common example being the case when a person wants to buy a new property while retaining ownership of another. The property being cross collateralized needs to be appraised and indemnified. Some or all of the equity in the other property can be utilized as collateral for the new purchase. Cross-collateralization can be used to counterbalance risk factors involved in a financial transaction allowing for approval of the loan and/or more favorable rates.
