Non Standard Mortgages - Foreign Currency
Advantages Of Foreign Currency Mortgages
The main advantage of foreign currency mortgages is simple:
They give you the opportunity to borrow money at a lower
rate of interest than is possible in the UK. This can be
achieved by choosing a country that has lower lending rates
of interest than we have in the UK.
A £150,000 loan repaid over 25 years at 6.75 percent would
give you monthly repayments of approximately £1,050. If
you borrowed the same mortgage in Japanese Yen, for instance,
at a rate of 2 percent, then your monthly repayments would
be around £650. This would be a staggering monthly saving
of £400!
If the currency markets work in your favour, then there
is scope for further savings to arise from favourable in
the exchange rate. If the pound climbs in value against
the currency in which you took the loan, then you will need
to spend fewer pounds to buy the same amount of foreign
currency you initially borrowed. This means that in real
terms, your mortgage has actually decreased and your monthly
repayments will be lower in pounds Sterling. Alternatively,
if there is provision to do so in the terms of the mortgage,
then it would be possible to maintain the level of the repayments
and clear the debt early with a lower total interest bill.
Given the volatility of the foreign exchange markets, these
fluctuations can be quite sizeable. At one point in 2000,
the Euro had declined almost ten percent against Sterling
in less than a year, meaning tens of thousands of pounds
knocked off the total repayment bill for any lucky British
residents who had earlier taken out a Euro mortgage.
Given the increasing propensity of companies to spread
their operations across Europe, many workers in this country
find themselves being paid in Euros and hold Euro-denominated
bank accounts. It can therefore be convenient to have a
mortgage that is also in Euros, as this would stop them
having to pay bank charges for converting their Euros to
pounds Sterling in order to pay their mortgage. Someone
who is paid in Euros does not enjoy the same potential for
currency exchange gains with a purely Euro mortgage as someone
whose main currency is Sterling, but nor are they exposed
to the risks mentioned below.
A final advantage - and one that will not necessarily appeal
to all borrowers - is that continental lenders often lend
on much longer fixed terms than UK mortgage companies. The
average length of a fixed period can be anything from five
to fifteen years in France and mortgages can be found with
fixed periods lasting as long as twenty years in Germany.
This gives you the security of having a rigidly fixed long-term
budget and knowledge of your repayment as far into the future
as you could realistically need to.
