Wouldnt it be nice to have these rates avaliable to us. I can share a little on this topic as my business partner and I did in fact go through the process to take out a euro based loan for Australian property. Basically this is what I discovered.
A- You need to be earning an income in that particular currency and
B- Need to be a citizen
The only reason I was able to take advantage of the opportunity was because my business partner was living in Europe earning euro dollars and has a dual citizenship.Because we were jointly purchasing , I was able to benefit from the loan.
As far as witholding tax it was 10% in this scenario.Other things to be aware of though was that they only give you a 70% LTV so you are required to provide a 30% deposit.
We’ve been working in Singapore for 10 years and we have dealt with Commbank here. We used an unsecuritized property we had in Perth to borrow $160,000AUD. The interest rate was 3% but you have to watch out for the exchange rate. Potentially money can be made if the rate goes up.
EG: our loan was $160,000AUD changed to SGD at 1.2573 = SGD $201168.
When we wanted to repay the loan the rate had gone up to 1.28.
So 201168SGD / 1.28 = $157162AUD. (AUD repayment was lower than the initial $160,000 so we made a bit of money)
If the rate had gone down to say 1.2 – we would have had to pay back $201168 / 1.2 = $167640… (7000 more than the original loan)
If you leave the loan in AUD you still have to pay the Aussie rate of 6-7%. You need to convert your loan to SGD to get the 3%.
The exchange rate now is around 1.22. It has dropped over the last 6 months or so and I think will continue to fall.
You say your father is a dual citizen of Singapore? Singapore doesn’t allow dual citizenship?… would he be a PR of Singapore/Aussie Citizen?
Not sure about with holding tax as our loan was not for a property in Oz.
One of my relatives has just gotten a Sing dollar mortgage for an Australian property. We check the Australian dollar every day twice a day or more but have no hedging in place. Would be interesting to see if anyone has been able to hedge (but basic economic theory says the cost of hedging should at least equal the interest rate advantage due to arbitrageurs).
Wondering if you have any idea which bank or financial institution offers a sing dollar mortgage for a Australian property. What are the criteria? I am thinking of refinancing my home loan to take advantage of the strong aussie dollars. Any tips would be helpful.
Ring Westpac….they will be happy to talk to you about foreign currency loans given they have just finished the 18 year court case stemming from the last batch they did.
The exchange rate risk is huge and the 3% saving you make on your interest rate can look like peanuts compared to how much you can lose on a currency move. With the A$ at a 24 year high you would need to be brave to take unhedged currency risk on a home loan.
And boomtown is correct …the cost to hedge will negate any saving you might make….in fact it will probably cost you more at the moment.
Lets say I am an Australian Citizen, and i go over overseas to Greece and work, and also hold Greek Citizenship. I get paid in Euros in Greece. I have 20% Deposit (plus costs etc), and wish to purchase an Investment property here in Australia.
In this instance – I arrange finance with an Australian Bank (lets say CBA), and my interest rate will be… how much??
Ask the hundreds of ex-farmers from the late 80's how borring cheap asian finance worked out for them. The excha/nge rate moved at the same time asian rates rose andthey lost thier farms by the hundreds. It also happened again in 1996 ? 1997 ish when the AUD hit 50 something US cents
Yeh its possible and if you structure it and hedge it right it may all work out perfectly, But get it wrong and kaboom. You better have a get out plan. Certainly not advisable for anyone but the most seasoned investor . And secondly make sure your got some equity up your sleave in AUD to renegotiate quicksmart if the rates and exrate both move against you in a hurry. This is more a currency player than property investor.
There are far safer and easier ways trade currency then have them mortgaged in iliquid properties.
I have a couple of foreign currency loans in place and pay <4% interest, what you need to keep in mind is:
– most banks only lend in the currency you earn and typically up to 70%-75%, some to 80% if the loan is big enough and St George goes up to 100% if you provide additional security e.g. an investment portfolio
– you can get loans in curencies different from what you earn but then the bank's margin often goes up and the LVR goes down to 60% to 65%
– you can get loans that offer free swicthing between currencies. My loan allows me to witch between USD/JPY/EUR/GBP/CHF/AUD at anytime without incurring a fee. That is why my interest rate is not the lowest in town, but I can move from curency to currency, and I typically look for a currency with a stable trending exchange rate, that is why I took USD rather than JPY when I took the loan out, now I'm considering moving to out of USD into another currency
– using a mulliple currency loan is my way off hedging, i.e. I can move out in and out of 6 major currencies at any time and worst case you just go back to AUD and pay teh rate everybody pays! Real currency heding using options will simply cost you more money than it's worth
– be careful with loans that limit you to a single currency and the AUD because you have much less flexibility and when go are forced into the AUD you often have pay pretty high rates
– currencies move easily 10% or 15% per month and that is when there is no scare! So be careful, our loan has been reduced by about 5% due to currency movement and I've the benefit of low interest rates. I keep a very careful eye on the exchange rates for all major currencies and actually pay for a currency trading service, not to trade but to get their insight in likely trends.
– worthwhile if you can stomach the risk and ride out any volatility and understand the combined effect of the interest rates and the exchange rates on your loan balance