Cross Collateralization


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.

BREAKING DOWN '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.

  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 ...
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