Non Standard Mortgages - Foreign Currency
Multi Currency Mortgages
Foreign currency mortgages do not always have to be in
any single denomination. There are lenders who will allow
you to spread your mortgage across a range of different
currencies.
It is possible to take a portion of the loan in one currency
and one or more other portions in currencies of a different
denomination. Although this can be seen as a way of spreading
the risk, as not all currencies will strengthen or weaken
against the pound at the same time, it is a relatively inefficient
way of doing this.
The option that is likely to be more effective in reducing
risk and maximising the currency exchange effect, is to
use a multi-currency switching facility. This means that
you are able to switch the currency in which the debt is
held and interest charged. Though you need to be aware that
broker commissions may eat into the potential gains to be
made, this facility does afford you the opportunity to keep
moving your debt into the most advantageous currency, depending
on the prevailing rates of interest and the direction in
which exchange rates are moving.
Say you originally borrowed in Dollars, but they are climbing
against Sterling rather quickly. This means that the amount
you owe is actually growing in Sterling terms, as the same
amount of Sterling buys less Dollars. At the same time,
the Euro is tumbling against both currencies - a fact which
would normally have no effect on your loan. If you have
the facility to switch your debt to the weakening currency
- Euros - then you are effectively acting to further reduce
the balance of your loan, as Sterling is able to buy more
Euros for each pound you have at your disposal.
While this system of debt management can be a really effective
way of cutting your mortgage, you are exposing yourself
to a risk that can end up costing you a lot on a monthly
basis if it goes wrong. You are also committing yourself
to a venture that really takes a lot of time, observation
and good judgement to be effective - things that are not
that easy to ensure as an amateur borrower. But if you are
willing to pay the management charges on top of the other
costs, there are a number of professional debt management
firms that will undertake this sort of operation on your
behalf, but then you will be adding management charges to
your costs and there's still no guarantee that they will
be successful.
