Foreign Currency Mortgages

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This topic contains 6 replies, has 4 voices, and was last updated by Profile photo of Anonymous Anonymous 9 years, 2 months ago.

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  • #53010
    Profile photo of Anonymous
    Anonymous
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    A client has just secured a mortgage direct from a major Spanish Bank which may be of interest to anyone still considering their mortgage options.

    The Mortgage is taken in foreign currency of your choice and the interest is based on the interest rate of the currency taken. Unlike previous foreign currency mortgage you can change from one currency to another every 3 months at no penalty, so for example a yen mortgage with interest rate of .762% + a broker fee of .0255 + banks charge 1.1% = 1.887% If the yen interest rate goes up you can switch to Swiss Francs, other currencies or good old euros should you wish.

    They offer a period of 2 years interest only, and up to 88% of the combined purchase price and costs if this equals less than 80% of the valuation. All avaialable to non residents

    Only possible negative is that you pay quarterly not monthly.

    Ability to service the mortgage as a % of disposable income is still calculated on the basis of it being a euro mortgage. A small charge of .3 of 1% to convert your Euros to Yen or your chosen currency

    Still looking for a catch but havnt found one yet.

  • #73445
    Profile photo of Anonymous
    Anonymous
    Participant

    @jiminspain wrote:

    Still looking for a catch but havnt found one yet.

    The catch is, that your debt increases in euro’s if the foreign currency increases in value. Can you imagine the fun, if your mortgage goes from 400.000 to 440.000 just because the yen increased ? Switching to a different currency within that mortgage sounds nice but you will only do that because of an increase in value (or interest) and then the damage is already done.

    However, it sounds very temping to only pay below 2% 🙂 You can try to cover part of the risk by using long running options on the foreign currency that your mortgage will be in. It does show the current state of the spanish market, the banks are creating new products just so the people will be able to still afford the silly prices.

    Same situation in the Netherlands, where you can now get a “generation” mortgage. Your parents start paying for your house and you take over, maybe your kids kids will be able to finally pay the house 😉

  • #73447
    Profile photo of Anonymous
    Anonymous
    Participant

    Apart from the obvious currency expose, swicthing every three months or so and keeping an eye on currency trends etc.

    In practise it is for the financially sofisticated, as its not possible for an average borrowers to get involved in futures and interest swaps.

    This product is also availble in the UK, however but the minimum amount of mortgage amount have to be in millions including portfolio etc.

    On a lighter note this is more complex than wife swapping

  • #75302
    Profile photo of Anonymous
    Anonymous
    Participant

    The catch is, that your debt increases in euro’s if the foreign currency increases in value. Can you imagine the fun, if your mortgage goes from 400.000 to 440.000 just because the yen increased

    Because you have the ability to change currency each quarter at no cost your expose ever is only the current quarter due. for a small fee an insurance is avaialble from the bank to cover this. you can also request to be notified of currency and interest rate fluctuations.

    In practise it is for the financially sofisticated

    Currently 90% of mortgages being done by this bank are nulti currency so I guess 90% of the people are financially sofisticated 😉

    but the minimum amount of mortgage amount have to be in millions including portfolio

    Minimum 150,000 euros

  • #75303
    Profile photo of Anonymous
    Anonymous
    Participant

    This is in fat a SUBPRIME mortgage. Everybody is investing in yens and this will explode someday.

    The wiser solution is to wait for the bargains that will be available in the following months. A lot of property developers are going to bankruncy. For example this one:

    http://murcia.loquo.com/ps/vivienda/particular/vendo-empresa-promotora-con-38-fincas/88685

    He sells his business including 10 flats, 9 parkings, 4 comercial locals, 9 detached houses and 6 pieces of land for 1.500.000 euros.

    This is less than 78.000 euros for house (apart from the parkings and the land).

    Surely we will see more advert like this in the future here in the sunny Spain.

  • #75305
    Profile photo of Anonymous
    Anonymous
    Participant

    My understanding of sub prime lending must be different to yours, this bank has one of the toughest lending criteria I know.

  • #75308
    Profile photo of Anonymous
    Anonymous
    Participant

    I was using the SUBPRIME term only in a ironic way! Of course is not comparable to the type of mortages given to poor american families.

    But using strange formulas to finance a property is a very risky action.

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