Cross Collateralization

AAA

DEFINITION of 'Cross Collateralization'

The act of using an asset that is currently being used as collateral for a loan is also used as collateral for a second loan. If the debtor was unable make either loan's scheduled repayments in time, the affected lender(s) can eventually force the liquidation of the asset and use the proceeds for repayment.

INVESTOPEDIA EXPLAINS 'Cross Collateralization'

Technically, taking out a second mortgage on a property is considered to be cross collateralization. In such a case, the property is originally used as collateral for the mortgage. The second mortgage is then tapping into the equity that the property's owner has accrued for collateral.

RELATED TERMS
  1. Mortgage

    A debt instrument, secured by the collateral of specified real ...
  2. Second Mortgage

    A type of subordinate mortgage made while an original mortgage ...
  3. Collateral

    Property or other assets that a borrower offers a lender to secure ...
  4. Collateralization

    The act where a borrower pledges an asset as recourse to the ...
  5. Default Risk

    The event in which companies or individuals will be unable to ...
  6. Home Equity

    The value of ownership built up in a home or property that represents ...
RELATED FAQS
  1. How do I calculate how much home equity I have?

    Even though it is normally assumed most people know their home equity, many are still confused about the topic. It is an ... Read Full Answer >>
  2. What is the difference between "closed end credit" and a "line of credit?"

    Depending on the need, an individual or business may take out a form of credit that is either open- or closed-ended. While ... Read Full Answer >>
  3. In what instances does a business use closed end credit?

    The most common types of closed-end credit used by both businesses and individuals are mortgages and auto loans. Businesses ... Read Full Answer >>
  4. What are the typical requirements to qualify for closed end credit?

    Typical requirements for a consumer to qualify for closed-end credit include satisfactory income level and credit history, ... Read Full Answer >>
  5. What are the long-term effects of delinquent accounts?

    Delinquency occurs when borrowers fail to make payments on their loans. All loan borrowers should do their best to avoid ... Read Full Answer >>
  6. How was the American Dream impacted by the housing market collapse in 2008?

    The American Dream was seriously damaged by the housing market collapse in 2008. In many ways, the American Dream is a self-fulfilling ... Read Full Answer >>
Related Articles
  1. Personal Finance

    Understanding Your Mortgage

    We walk through the steps needed to secure the best loan to finance the purchase of your home.
  2. Options & Futures

    Home-Equity Loans: The Costs

    Learn the factors to consider when comparing the different programs offered by various lenders.
  3. Home & Auto

    Equity Stripping Leaves Creditors Empty-Handed

    Add additional debt to your real estate assets to keep the creditors at bay.
  4. Home & Auto

    How the Fed Affects Reverse Mortgages

    An in depth look at how the Federal Reserve affects reverse mortgages.
  5. Investing

    Where Are Real Estate Stocks Heading?

    We summarize five economic reports that investors should monitor monthly to keep them informed of where real estate and its related stocks are heading.
  6. Home & Auto

    Protect Yourself Against Reverse Mortgage Scams

    You could lose not only money, but also your home, if you fall for these schemes.
  7. Home & Auto

    Find a Reverse Mortgage Lender You Can Trust

    Reverse mortgages are a notorious lending market. Follow these steps and the chances are good you’ll find a trustworthy, competent lender.
  8. Home & Auto

    Do You Qualify for a Reverse Mortgage?

    See whether you meet the age qualifications and other requirements for getting a reverse mortgage.
  9. Home & Auto

    Reverse Mortgages and Your Taxes

    It pays to know the tax benefits from getting a reverse mortgage. Two major considerations: Are the proceeds taxable and is the interest tax deductible?
  10. Credit & Loans

    How to Pick the Right Online Mortgage Lender

    Here are the best tactics to help successfully navigate choosing the right online mortgage lender.

You May Also Like

Hot Definitions
  1. OsMA

    An abbreviation for Oscillator - Moving Average. OsMA is used in technical analysis to represent the variance between an ...
  2. Investopedia

    One of the best-known sources of financial information on the internet. Investopedia is a resource for investors, consumers ...
  3. Unfair Claims Practice

    The improper avoidance of a claim by an insurer or an attempt to reduce the size of the claim. By engaging in unfair claims ...
  4. Killer Bees

    An individual or firm that helps a company fend off a takeover attempt. A killer bee uses defensive strategies to keep an ...
  5. Sin Tax

    A state-sponsored tax that is added to products or services that are seen as vices, such as alcohol, tobacco and gambling. ...
  6. Grandfathered Activities

    Nonbank activities, some of which would normally not be permissible for bank holding companies and foreign banks in the United ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!