Saturday, October 13, 2007

Foreign Mortgages Now Availabe in the U.S.

30-year fixed mortgages are currently available for 6.24% in the U.S. Want a 30-year fixed rate for only 4.43%, a savings of almost 2 percent? Well, mortgages at 4.43% are available in the U.S., but there's a catch - it's a "foreign mortgage," and you'll have to make the payments in Swiss francs, not U.S. dollars.

For example, a $100,000 mortgage would be the equivalent of SF118,430 at the current ex-rate of SF1.1843/$. Foreign mortgages require quarterly payments, in this case SF1,788.60 per quarter (at 4.43%) or $1,510.26, at the current ex-rate. (Quarterly payments at 6.24% on a regular mortgage would be $1,848.46.)

The one-year forward rate for the SF is SF1.1613/$, meaning that the dollar is selling at a one-year forward discount of almost 2%. If the actual ex-rate in one year is close to the one-year forward rate, your quarterly payments would stay the same in SFs, but would increase to $1,540.17 in USD, a 2% increase. Like the interest rate risk on an adjustable rate mortgage, you'd now have currency risk, and your dollar payments would fluctuate on a foreign mortgage, depending on the appreciation (lower USD payments) or depreciation (higher USD payments) of the dollar.

On the upside, if the dollar ever got back up to about SF1.78/$ like in 2001, your quarterly payments in dollars would drop to $1,000.

Read more here in the WSJ.


At 10/13/2007 6:28 PM, Anonymous Anonymous said...

Bring on the gamblers...these foreign currency mortgages should do well in Las Vegas.

Seems like it would bring a whole new meaning to first payment defaults too.


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