Foreign Currency Mortgages - the advantages and disadvantages Summary
The advantages and disadvantages of a foreign risk mortgage.
Author: Anna Richardson
The vast majority of mortgage borrowers get their ( personal loans ) mortgage from
a mainstream UK lender, paying in pounds sterling and following the Bank of England base interest rate. But there are alternatives.
The UK's domestic interest rates are quite low, especially in comparison with recent years, ( life insurance quotes ) however interest rates are in fact a lot lower in the Eurozone, Switzerland, America and Japan. You have the option of borrowing the money you need for your house purchase in Euros, US dollars, Swiss Francs or Yen, securing the debt on your house and taking advantage of the lower interest rates.
This illustration of 3 month money market interest rates demonstrate the ( life assurance ) differences between UK interest rates and those around the world:
Japanese Yen 0.12%
Switzerland 1.03%
Eurozone 2.46%
US $ 4.48%
Sterling £ 4.64%
(Source: 3 month Money Market Rates, Financial Times, 9/12/05)
You won't get as good a deal as the money market rates illustrated suggest, ( home insurance ) because you will have to pay a premium for borrowing in an overseas currency - however, if interest rates stay as they are now, the potential is still there to make huge interest rate savings.
So if the rates are so good, why are only 1% of UK householder mortgages taken out in overseas currencies? The reason is: there are extra risks.
Interest rates - they could go against historical trends and increase, narrowing ( cheap car insurance ) the gap between UK rates and the rates for the overseas currency in which the mortgage was taken out. This would mean a reduced saving in interest and it could even turn your saving into a deficit, and cost even more than a standard UK mortgage.
Exchange rates - the biggest risk lies here. If you have borrowed in Swiss Francs for example, you have to repay the loan in Swiss Francs. If the Swiss Franc/Sterling exchange rates could be frozen together then it wouldn't be a problem, but of course that's never going to happen.
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