   
mmcgarry
Posts: 3
Joined: 6/6/2008
|
 Reduce your mortgage payments via c...
|
|
|
Minimising Your Mortgages Whilst Increasing Your Property Portfolio Using International Currency Mortgages
By Matt McGarry
In today’s ever changing and innovative financial world, consumers have become used to being introduced to new and creative means of either making or saving money. This is no different when it comes to borrowing money.
There is a little known, alternative method of borrowing that is focused on allowing clients to significantly reduce their monthly outgoings whilst offering the potential to reduce capital borrowings over time. Traditionally if a client wants to borrow money to buy a property they would pay the local rates of wherever they were purchasing that property. This can be a hassle especially if you are not resident in the country in which you want to buy. Lenders are normally nervous of non residents, they charge extra interest if you are buying for investment purposes and they place all sorts of caveats and restrictions on what you can and can’t do with the property, these restrictions can very often lead to the purchase not going ahead as the ‘cons’ far outweigh the ‘pros’ of distance ownership.
Fortunately, there are a number of large international banks that allow clients to purchase property in Australia, Canada, Dubai, France, Hong Kong, Thailand, New Zealand, Portugal, Spain, Singapore, the UK and US without having to leave home. Furthermore it has opened up a facility that allows you to release equity on existing property in certain jurisdictions’ that can be used for further property purchases or as you wish. These lenders will also allow clients to borrow in different currencies to that of their income or base asset and take advantage of [spam word detected], which can significantly reduce their outgoings.
The second objective of reducing capital borrowings is achieved by initially borrowing in a currency that is considered strong against your base asset at the point that you take the loan out and hoping that historic trends repeat themselves and that the currency weakens over time. Guidance on the most appropriate time to switch currency and make capital savings is vitally important in order to capitalise and reduce borrowings and is included in our service.
The way it works.
An example of this would be a client purchasing an investment property in Australia and borrowing AUD 350,000 from a bank. If the client were to borrow in his base currency at 8.93%, his quarterly repayment on an interest only loan would cost him AUD 8,372 per quarter. This is assuming the client has opted for an interest only mortgage to keep the costs down.
The client would need to make a contribution towards the property on a monthly basis as his rent is lower than his mortgage payments. He justifies this to himself as he hopes for capital appreciation on the property over time, which will mean he has made a good investment when he sells.
If the same client takes advantage of a currency mortgage, and after some currency analysis he decided to borrow Swiss Francs, then he would be charged 3.89% rather than 8.93%, and so his quarterly interest payment would be AUD 3,646, which even after his agent’s fees and essential maintenance means that he is in profit each month and the investment is self-sufficient.
Taking the difference between what the client would be paying in his base currency (AUD 8,372) and what he is paying in his selected currency (AUD 3,646); investing some of the savings he has made acts as a perfect hedge against adverse currency fluctuations. The client would also be getting dual use of the asset as not only would he be getting capital appreciation on the property, he would also be getting participation from the savings, which, depending on his appetite for risk and market conditions, are creating a fund that can be used to repay the loan at some stage in the future.
In this particular example, the total cost of the house, if he were to use the traditional method would cost him AUD 1,346,562 over 25 years whereas utilising our philosophy it would cost him AUD 562,225, and he would have the loan fully paid off after 22 years.
(*the above calculation assumes interest rates remain unaltered throughout the term and that the client invested AUD 2000 per quarter and received a modest return of 7.5% per annum).
Profit potential
The major advantages of currency mortgages over and above traditional mortgages are that as well as reducing outgoings; clients can switch between currencies on a quarterly basis and therefore take advantage of weakening currencies, which in turn will reduce capital borrowings. This again is part of the service package that has been designed for the international property investor.
The relationship between the Australian Dollar and the Japanese yen over the last 10 years has been such that if a client got the timing absolutely perfect, then as well as reducing monthly interest payments by 75 percent against AUD rates, they would have also knocked off a staggering 35 percent from their loan. This is an ideal example of how currencies can work in the client’s favour.
It is important to understand that currency mortgages can also work against individuals. As such, when selecting the currency at the outset, sufficient analysis must be undertaken as to which currency is the most appropriate both from an interest rate basis and also from its strength in relation to the individual’s base currency. Furthermore, the whole mortgage package must be managed on a regular basis in order to make sure that both objectives are being achieved.
If you have any questions regarding this contact Matt McGarry at Lifestyle Thailand. Tel 0066 2254 6816/7
--------------------------------------------------------------------------------
Matt McGarry
Lifestyle Thailand
mattmcgarry@lfsbrokers.com
0066 2254 6816/7
|
|
Printable Version
New Messages
No New Messages
Hot Topic w/ New Messages
Hot Topic w/o New Messages
Locked w/ New Messages
Locked w/o New Messages
Post New Thread