Mortgage loans – mortgagees will learn inventive ways to fight back against high mortgage rates. Foreign Currency Mortgages offer an escape from rising interest rates and allow full debt repayment in record time
By Bernard Haasbroek
www.MyInfoRiches.com
Mortgage loans are a hot subject recently with interest rates creeping up and mortgage debt at an all time high. Many homeowners and property investors are suffering from the “Cash-Flow Crunch” as it is known in financial terms. Mortgagees are forced to fork out more and more in interest payments. Some homeowners are even selling out and going back to renting because this is a more affordable option. Property investors on the other hand may also try to sell out when the cost of keeping a property is higher than the rental income, meaning that they are paying in every single month. Are these perhaps the signs of a property crash?
A New Bread of Mortgage Loans
But there is hope for the financially astute property owner in the form of Foreign Currency Mortgages. A Foreign Currency Mortgage is a mortgage for a UK property but in a foreign currency like the Euro or Japanese Yen. In simplistic terms, the Mortgage Loan would be switched between various major currencies with the aim of not only reducing the interest payment and monthly outgoing but also the amount of actual debt!
Let’s assume we have a UK based property portfolio with an outstanding mortgage loan of £100’000. It can of course be any amount but the sums work better with round figures. Now let’s also assume that the rate of interest paid on the mortgage is 7.5% p.a. giving a monthly interest payment of £625. There are however many countries around the world where interest rates are lower than UK. For example, the one-year market rates for some of the leading world economies, as taken at the time of writing, are as follows:
Sterling (£): 6.59%
USD ($): 5.26%
Canada ($): 5.01%
Euro (€): 4.78%
Swiss Fr: 2.98%
Yen (Y): 1.10%
Now suppose we decide to switch our Sterling loan to Yen at the exchange rate of 220.00. (£1 will buy us 220 Japanese Yen on the day). Our £100’000 mortgage would therefore translate into 22’000’000 Yen with an interest rate of maybe 2.0%, (i.e. the Japanese prime rate plus 0.9% banking interest). We would effectively reduce our monthly outgoings to a mere £166.67 and save £458.33 per month in interest if we translated our payments back at the same exchange rate.
It Gets Better
Now, let’s say the Yen weakens by 10% against Sterling. This makes the new exchange rate 244.4 Japanese Yen to 1 Pound Sterling. If at this point, the loan is re-mortgaged into Sterling, the 10% movement results in the debt reducing from £100’000 to £90’000 or by £10’000. (Take the 22’000’000 Japanese Yen Mortgage divided by 244.44 as the new exchange rate.)
So while the debt was held in Yen, the interest rate payment was only 2.0%, not 7.5%. This saved us £5’500 in interest payments over a year and a further £10’000 gain was made by the favourable movement in the exchange rate between the two currencies.
What’s The Risk?
Ah! But what if the exchange rate went the other way I hear you say. Well let’s see. If the Pound Sterling weakened against the Yen by 10% so that the exchange rate is 200 Yen to the Pound the loan amount in Pound terms becomes £110’000 (220 Yen divided by 200). This means that we owe £10’000 more than we did previously, but we still benefit from the lower interest rate, saving us on average £5’500 per annum in interest payments. And as mortgagee we could of course choose the timing of the switch, and by simply waiting for a favourable exchange rate to return we may avoid such a loss altogether.
What to Do Next?
There are actually a myriad of tools and techniques to reduce risk and costs in relation to Foreign Currency Mortgages. The best resource on this subject is a book by Don James called “The Millionaire Mortgage Secrets”, which you can find at www.millionaire-mortgage-secrets.com.
Truth is, this technique has been used by most wealthy individuals and savvy property investors for some time now. The results have been quite phenomenal, often leading to the full repayment of the debt in half the normal term of the mortgage loan and saving the mortgagee tens if not hundreds of thousands in interest payments and gains in equity!
Seems like the wealthy are getting wealthier and the rest of humanity is stuck in a debt trap... This is yet another example of the old phrase “Knowledge Is Power”. If you like to stay on the pulse of new, money saving and profit making information, then do yourself a financial favour and subscribe to myinforiches-alerts at www.MyInfoRiches.com.
Article Source: http://www.theukarticledirectory.co.uk/.
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