Foreign Currency Mortgages - the advantages and disadvantages. Part 2

Summary

The advantages and disadvantages of a foreign risk mortgage.

If Sterling strengthened against ( home insurance ) the Swiss Franc, then

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your risk has paid off. You would have to convert less Sterling back into Swiss Francs to repay the loan than the Sterling value of the capital you borrowed in the first place. An interest rate saving and pay back less than you borrowed, that's the ideal scenario.

But if Sterling falls against the Swiss Franc you get the worst-case scenario, and you will end up repaying ( personal loans ) more money than you borrowed. So in this context, you'll be taking out an overseas mortgage rests on the hope that Sterling will not fall against the currency you borrowed. Essentially, you will have converted your mortgage into a currency speculation, securing your most expensive possession, your home, against it! There's big savings to be made - but it's a big gamble.

You will also need to provide a lot of cash up front, to get a foreign currency mortgage you will need a deposit of at least 20% for your house purchase.

There is another way. You can link your pounds sterling mortgage to a foreign interest rate. You'll avoid the ( life insurance quotes ) exchange rate gamble, but you will still be gambling on the assumption that overseas interest rates will stay at a lower rate than the UK's domestic interest rates. These types of mortgage typically tie you in for 5 years, and if you want to pay it off early or switch mortgages, you will have to pay a large penalty. However, the mortgage can often be transferred to another property. Some people find this type of mortgage represents an acceptable risk, especially if the mortgage is linked to the Swiss Franc interest rate. Interest rates in Switzerland have ( life assurance ) remained below 1% for the last four years. Similarly, the Eurozone interest rate has not moved in five years.

Whatever you decide, it's always a gamble, and you must think long and hard ( cheap car insurance ) before making a decision, ideally seeking independent financial advice. In the long run, it's you who will either be the winner, or the loser.

 

Statutory Wealth Warning:
Your home may be repossessed if you do not keep up your repayments on a mortgage or any debt secured on it. Security by way of a charge on your home may be required.

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