Overseas Borrowing – Some points to Consider

 

Overseas BorrowingSelecting the currency in which to borrow is one of the most important considerations when borrowing Overseas. An Overseas mortgage in an alternative currency to that in which your income is earned and the loan monies are used introduces currency/exchange rate risk.

Look for healthy choice of mortgage options covering a range of different ideas – variable rates, fixed rates, or even a mixture of both.

Terms and conditions will vary between overseas mortgage providers. Be certain that you fully understand the terms and conditions of the mortgages on offer – for example, the date a particularly favorable opening rate will come to an end and what happens to the rate after that date. What are your obligations for accepting a special mortgage package? Will acceptance leave you tied to a mortgage for the entire term, will you be able to redeem the mortgage at a date of your own choice. Will there be any penalties for early redemption? If you want to repatriate funds, to pay off equity release mortgages used to purchase that overseas property initially. I suggest you check if that country will allow funds to be repatriated in the first place.

Most lenders these days are relaxed about letting out their properties to tenants whilst overseas. However, some mortgage providers take a dim view of lending against a property which is not the principal family home or used in that way and it is vital that, at the outset, you declare how the property will be used. This is not only important in your dealings with the mortgage provider but also with the insurance company with whom you will be securing mortgage protection, buildings and content insurance.

Currency
As a general rule, it is recommended that a mortgage be taken out in the same currency to that in which your income is earned and the loan monies are utilised. For example, if you earn Euro income and you are borrowing to purchase a overseas property (maybe even earning Euro rental income) to which you will return then a Euro mortgage would be most desirable. This clearly avoids the heartache caused by currency and exchange rate risks, and the risks are high.

The effect of borrowing overseas is that it has introduced foreign exchange rate risk. If the funds are borrowed domestically, the amount to be repaid is a certain. If the funds are borrowed overseas, the amount to be repaid is arbitrary, depending on the exchange rate one year from now.

Conclusion
Overseas borrowing introduces exchange rate risk. The decision of whether to borrow offshore or domestically should be driven by taxation and strategic considerations.

Source: Global Mortgages Direct: www.globalmortgagesdirect.com

There is 1 comment for this article
  1. bob@bob.com at 12:49 pm

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