Summary

Foreign currency mortgages could save you a lot of money but the ( secured loans ) risks are high. This article explains.

Foreign Currency Mortgages - what are they and what are the risks? Page 2

Author: Michael Challiner

If sterling strengthened against the Yen, then you would have to convert

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less sterling back into yen to repay the loan than the sterling value of the money you initially borrowed. That would be great, an interest rate saving and pay back less than you borrowed. But if sterling fell against the Yen the reverse happens - you end up paying back more capital than you borrowed. So in this ( life insurance quotes ) context, an overseas mortgage becomes a currency bet that sterling will not fall against the currency you borrowed. In other words you have converted your mortgage and what is probably your biggest personal liability, into a currency speculation. And secured your home against it! You could win but it's not for the faint at heart!

Another point to be aware of is that you'll need a deposit of at least 20% for your house purchase in order to qualify for a foreign currency mortgage.

Incidentally, there is now a second option. You can take out a mortgage in £sterling and have the interest rate you pay linked to a foreign interest rate. Whilst you avoid the currency exposure risk, you are still taking gamble that the overseas interest rate plus the interest ( life insurance quotes ) rate premium you'll have to pay, will remain lower than the UK's domestic interest rates. These types of mortgage typically have a 5 year tie in clause. Therefore, you'll have a hefty penalty to pay if you want to pay it off early, although the mortgage can usually be moved to another property. For some that represents an acceptable risk, especially if the mortgage is linked to the Swiss Franc interest rate which has been astonishingly low and stable over past years. For example, the interest rates in Switzerland have not moved above 1% in the last 4 years and the Eurozone interest rate has not changed in 5 years.

Nevertheless, part of the wording for a regulated investment warning ( life insurance quotations ) comes to mind ... past performance should not be construed as a guarantee of future performance ..

You pays your money and you takes your chance.