Getting a mortgage in a foreign currency

I am about to build a house on a property in the area of Munich and I am looking for best mortgage. I stumbled in a broker who proposed me a mortgage with CH franks which sounds interesting.

Anybody here had such experience?

thanks !!

this was also offered to us, but a friend from the UK 'in the know' advised us against it. "too too risky"

we managed to get a better, and safer, deal from a German bank.

interest rates are a bit higher now though.

Obviously the big issue with a Swiss Franc mortgage is the exchange rate fluctuations. You borrow a lump of Swiss Francs (convert into €uros to purchase), but for the whole mortgage you still owe Swiss Francs.

This means that if for example the Swiss Franc strengthens by 10% relative to the €uro - your outstanding debt (in €uros) has just gone up 10%.

There are also options whereby you have a fixed €uro amount and pay back I think in fluctuating Swiss amounts monthly.

So its a foreign exchange gamble, secured against your home!!

That said I think its quite a fun gamble 'cos every year you should be about 3% or so better off on the interest rates, and there is even a chance that the exchange rate goes your way (so the €uro strengthens against the SF).

Do you know what % annual interest rates your man is quoting?

interesting idea...
this might help with the fex issues: http://www.ecb.int/stats/exchange/eurofxre...aph-chf.en.html
if you have a link to the mortgage site i would be interested in taking a peek...

Looking at that graph, as a quick REAL WORLD example:

If you had needed €100,000 back in October 2007, you would have borrowed SWF 167,000 from Mr. Swiss Bank (rate was 1.67)

Then in March 2008 you would have looked again, and seen that to pay back the full SWF 167,000 you would need to get your hands on around €107,000 ('cos rate was then 1.56 to the €uro). Your €100,000 would leave you still needing to find an extra SWF 11,000 to pay back Mr. Swiss Bank.

So you might save 3% per annum, but in the above example you "lost" (in €uros) 7% in just 6 months.

JE , True in case Euro/SWF increase and vice versa. In the long run , not six months, it looks acceptable.

This guy says that I can change to a fixed interest rate in Euro at any time and at the market price.

He offers 3.9% + 1% tilgung.

We are all different. My own view is that most of us are better of with financial arrangements that are as simple and transparent as possible. A CHF mortgage for a Brit (?) etc in Germany is not that.

We can't second guess the markets - otherwise we'd all be rich - and it's probably best not to try to do so if your base financial security is at risk.

since I broker a number of mortgages every year for several years, part-mortgage amount is CHF or Japanese Yen or even Hungarian Forinth are part of the range of mortgages a professional broker should offer. The questions is, whether this is the right mortgage for you. If the broker you talked to did/could only offer you such a mortgage I would recommend some caution because then he might simply not have sufficient knowledge or background to give you unbiased andfiar advice.

Several of my clients have made good deals with CHF and Yen mortgages in the past, but it needs first of all an experienced investor/borrower who can handle fluctuations in the currencies involved (and has some cash reserves if the currency dropes under a given level set by the bank, because then the bank will usually require extra security payments) and a bank that can handle the currency managment well. Most German banks are not in a position to do that properly, most Austrian banks, however, are, because they have much more and longer experience with that then German banks. Close to 2/3rds of Austrian mortgages are based at least in part on foreign currencies and they have the tools and experience to handle currency management well.

One more thing to mind: the interest rate you mention is not fixed but floating and we are currently in a market situation where all signs hint to increases of interest rate in the next couple of years. The foreign currency mortgage will rise accordingly whereas the typical German banks mortgages are fixed with the current interest for 10-20 years. Thus the interest advantage could easily gobbeled up by a steady increase of interest rates over the next couple of years...

In the end, in my professional opinion, you should only consider a foreign currency mortgage if
1) you could also afford to pay interest and repayment on the principal/capital (1-2% year) with a German bank. If the CHF-mortgage is just a tool to get to monthly dues for interest payment and all you could still afford because you could not with a German bank mortgage, forget about it.
2) you are an experienced investor who has handled for instance stock or investment fund portfolios in the past and if you know that you don't loose much sleep over a bit of rolercoaster at the markets
3) the foreign currency is only 30-50% of the total mortgage

Hope this helps you,

Cheerio

Thank you for the advice !

Some brokers believe that interest rate will drop by the end of the year. Do you think it is a good idea to take the CHF mortgage till interest rates are down then change to a fixed 10years one?

Are there expenses to foresee here?

thinker: I fear my little crystal ball does not show a clear enough picture with regards to the interest rate development of either the CHF or the EURO for the forseeable future... Therefore anything I can tell you about this has at best a 50:50 probability of being right.
On one hand the European Central bank could cut the interest rate somewhat in order to devaluate the EUR in comparison to the USD to ease the strain on some major exporting industries through the steep devaluation of the USD in recent month. At the same time they want, however, to battle an increasing inflationary pressure on the EU economies and thus they are apparantly more inclined to even increase the interest rate to achive this goal. Therefore most comments I read assume a steady short and mid-term increase of EUR interest rates.
As for the CHF, this is even hard to estimate. Most comments I hear and read assume stable or slightly rising interest rate in Switzerland as well. As to how the currency will develop in relatio to the EUR is anyone's guess right now.

A short term mortgage in CHF does not make much sense to me because on one hand it is absolutely uncertain if the interest rates will move in your favour during this short period or not and how the currency relatio will develop in the same period of time. On top of that banks will usually charge 1-2 % fees/charges on the mortgage amount regardless of the duration and you would therefore need to make a plus higher then 2% during the short period out of difference in interest rate and currency value which is not very likely from where I stand.

Cheerio

Gents,

Finaly, I found the money in CHF, 3.95% interest and 0.005% fee.

I plan to start building the house this winter.

if you look at the past 8 years the swing is acceptable and I can quit any time to a fixed rate.

Thank you fro your help

good for you! wish you best of luck and enjoy the new house...

Cheerio