foreign mortgage

Hi all..Just bought property in Poland . Some banks there want to give me a mortgage in Swiss francs(chf). Is this advisable. They said that in Polish zlotys it will be 8% or so. Whats implications of Taking out Mortgage in Swiss Currency.

Let me get this straight. I am presuming you live and work here so earn Euro, you then want to get a CHF mortgage to buy an asset in Poland????

This was originally posted in Mortgages and Home Buying but is fundamentally a Property Investment query.

It's becoming more popular to get a morgage in swiss francs. It's especially becoming common in Austria. The reasoning behind this is that the base interest rate set by the swiss national bank (whatever they're actually called) is significantly lower than the ECB rate. It is also assumed that the value of the Swiss Franc will remain relativly constant relative to the euro. Of course this is just an assumption and no guarantee

The danger of taking out a morgage in a foreign currency is always that the value of this currency will rise relative to the value of the currency you are earning in (or receiving rent in) to pay back the morgage

So, for example, say 1 CHF = 0.6 EUR and your morgage payments are 2000 CHF per month (1200 EUR). Now if for some reason the value of the euro were to fall relative to the franc so that we now have 1 CHF = 0.7 EUR, you still have to pay back 2000 CHF per month, but this is now 1400 EUR. So if you're using your euro earnings to pay back the morgage, then you are an extra 200 EUR out of pocket/

If you are renting out the property in a non Euro country, e.g. Poland, and dependant on the rent from your tenant to pay back the morgage, then if the Zloty were to fall in value relative to the Swiss Franc, then you have the same problem.

There is also a danger that the Swiss interest rates may rise higher than the ECB one (or the rates of your country). IMHO that is secondary relative to the currency fluctuation risk.

its always better to borrow in the currency that your rental income will be paid in. If you are earning Euro, renting in Zloties and paying Mortgage in Swiss francs, you are open to any possible combination of disasters.

Emerging market currencies tend to appreciate in real terms.

This means the Zloty will appreciate over next 20 years.

Taking this into account get mortgage in CHF if your comfortable with the slight risk associated as the appreciation of the Zloty should curtail the mortgage costs.

Alternativly borrow in euros

"its always better to borrow in the currency that your rental income will be paid in. If you are earning Euro, renting in Zloties and paying Mortgage in Swiss francs, you are open to any possible combination of disasters."

Ravima is talking rubbish...

ecstatic said:

Emerging market currencies tend to appreciate in real terms.

This means the Zloty will appreciate over next 20 years.

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Must borrow your crystal ball sometime.

Go read some macroeconomics books.

You may see through the mist.

ecstatic said:

Ravima is talking rubbish...

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Attack an opinion by all means, but please don't attack the person expressing the opinion.

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ecstatic said:

Go read some macroeconomics books.

You may see through the mist.

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Perhaps you would like to summarise what the books say to support your argument?

It seems logical to me that you reduce currency risks if your mortgage and rental income are in the same currency.

Ecstatic,
What Ravima said make perfect sense... and at least she gave a clear answer rather than saying one way is good but the other is good also...

ecstatic said:

Taking this into account get mortgage in CHF if your comfortable with the slight risk associated as the appreciation of the Zloty should curtail the mortgage costs.
Alternativly borrow in euros

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I am sure the Introduction page of any economics book will tell you how important it is to be able to make up your own mind on various topics...

Look around you economically Japan and China both had appreciating currencies as there economies prospered.

Japan was told by the US revalue revalue revalue hence Japan revalued and went into depression. One core reason was there currency become overvalued.

Now look at present day europe since fall of berlin wall and take for instance the lithuanian currency since the fall of the berlin wall.

1 Lita was worth .25 cents in dollar terms between 1994 and 2002 today it is pegged to the euro 1 lita is worth around 29 euro cents. The currency is appreciating in nature.

So for instance you have your house loan in local currency and your rent in local currency then you do not get appreciation of the currency.
If you have your loan in foreign currency then your rent is always going up alongside ur asset is moving slightly up in value and your mortgage is going down quicker.

Heck Poland prior to EU was trading at 4.7 against the euro. Today is 4.0 so the persons who borried in zlotys made a mistake and wrote off 15-20% of there monthly rent toll.

this does not make sense. If everyone could borrow in currency x and invest in currency y and generate a return above the risk free rate then every hedge fund in the world would be in on this - such arbitrage opportunities only tend to exist for relatively brief periods of time.

if you split your liabilities and assets by currency you run significant exchange rate risk. Just look at what has happened to the Turish lira since may (-20% against the €). Anyone folowing your adice would be servicing a € mortgage with a currency that has just fallen 20%.

The lira is obviously quite a distance away from convergence with the eurozone monetary system. They are not even in ERM 1 stage as yet.

"Anyone folowing your adice would be servicing a € mortgage with a currency that has just fallen 20%" Or maybe the persons who follow it now make the 20% on the marker?

Obviously one has to judge whether the base currency is overvalued or not.

"everyone could borrow in currency x and invest in currency y and generate a return above the risk free rate then every hedge fund in the world would be in on this - such arbitrage opportunities only tend to exist for relatively brief periods of time"

-- i never stated it was risk free quite the contrary moving money from outside your own operational country is high risk.

Obviously when you are interested in using currencies into an equation it is speculation plain and simple.

But if the currency / country you are investing in and its currency depreciate then you have made a fundamental judegment error on your original investment.

These opportunities on currencies weakening and strengthening always exist globally its the small investors option whether they would like to take advantage or not.

I would submit to you that buying a property overseas is already risky enough without taking a punt on exchange rates too. As for small investors 'taking advantage' of currency moves I agree with you that it is up to them but ultimately it just adds another layer of complication to the process.

As an aside, I do not know of any financial institutions or corporations who would enter into a long-term obligation in one currency (i.e. a mortgage) with their asset (property) in another and not look to hedge their exposure.

mickymcie said:

Hi all..Just bought property in Poland . Some banks there want to give me a mortgage in Swiss francs(chf). Is this advisable. They said that in Polish zlotys it will be 8% or so. Whats implications of Taking out Mortgage in Swiss Currency.

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Am in the same boat as Mickymcie, but i thought that the entire loan would be converted into CHF on the day i received the loan.. and that would be the only conversion loss??

As an aside, I do not know of any financial institutions or corporations who would enter into a long-term obligation in one currency (i.e. a mortgage) with their asset (property) in another and not look to hedge their exposure.

In eastern europe most of the banks do allow CHF EUR & local currency.

Take a look at this document:
[broken link removed]

Most agree hungary is way overvalued currency.

Im quite bullish on the Zloty been undervalued whether you wish to risk 100K or whatever the price of the apartment is on anyones bullishness remains to be seen.

It begs the question would the banks give these loans in other denominated currencies unless there treasury departments also believed the local currency was undervalued ?

Thats one for the bankers!

By the way "They said that in Polish zlotys it will be 8% or so" sounds excessive take a look at expander's offers (mortgage broker in poland (i am not affiliated in any manner )).