Mortgage currency choice

[buyingabroad]

Can someone confirm my understanding which is as follows please?

If a country's currency is currently overvalued, then if one is buying a property in that country, wouldn't he or she be better off borrowing in that currency to finance the purchase of a property there? That way, while the euro equiv of the property value decreases so does the mortgage and therefore currency risk would only be on the equity one has invested.

 

[JohnBoy]

given that your rental income is in the local currency it makes sense to have your liabilities (borrowings) in that currency too. Though, if a currency is due for a correction, this can often be a signal for interest rates to increase as the local central bank moves to offset the inflationary inpact of an effective devaluation. You ought to be aware as well that a perceived overvaluation can persist for a long time. Many people think that the $ is overvalued (given the huge twin deficits) but a significant correction has failed to occur.