Has anybody had any experience with Foreign Currency Mortgages.
I have spoken with a broker who advises they use hedging. Apparently they can reduce your capital by 7-12% per annum and you will be able to pay your mortgage off in 5-7 years. Is this realistic in today's environment.
Eligibility is 60k min income, 100k min mortgage and max 65% loan.
I look forward to receiving any good or bad comments.
Thanks Groper
If you don't understand it, don't consider it. IMO it sounds like your broker is trying to produce some package so complicated that you will not be able to see him collect his fee.
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Not for awhile - they were quite popular at the beginning of the 1990s - although I am considering one for a client at the moment.
Really only suitable for those who have an income stream in a foreign currency. I would have thought the hedge premium would negate much of any potential gain.
Most (all?) have lock in clauses, which can mean that you cannot recover from a (say) 30% loss of capital.
Tread carefully.
I think you may have misunderstood my question, I understand the theory and my brokers fee's are straight forward.
My question is, With the pound so strong at the moment, is it possible to achieve these quoted returns?
Regards Groper
What do you mean by "you cannot recover from a (say) 30% loss of capital."
Thanks Groper
I was referring to a clause which would force you to revert to a sterling loan in the event of the relevant currency appreciating by (say)30%, without the option of re-conversion at a later date. Hence, the borrower will have made an irrecoverable capital loss, which is likely to be greater than the gain on the interest side.
In article , Groper writes
Assuming you are using pounds to convert and pay the loan down,
It obviously relies on the pound strengthening each year, against the currency chosen, by the suggested 7-12%
How likely do you think it is that this will happen year on year versus any currency?
If the pound is currently strong, and weakens by, say, 30%, your loan grows by 30% in pounds.
It's a risk which you should only take if you know what currencies will do....... ??????
Dont forget, your broker earns money on the deal, but takes no risk.
OK, the usual rule is not to mix your investments. If you want a mortgage then get a mortgage, if you want a foreign currency mortgage for a genuine reason (because the property or your income is in that currency) then that's ok too. But if you want a straight gamble on currency movements, you should do so in a stand-alone way, not by combining it with a mortgage, otherwise the comment that DP made does apply. There IS a cost involved in hedging (there must be or no-one would underwrite the risk) and odds are you are not going to be able to find where it is hidden.
Tim .
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