Possible to hold mortgage in dollars?

radioactiveman

Hi,
Was just reading one of Eddie Hobb's books in which he states that in the event of US dollar interest rates being significantly lower than euro interest rates, that you should ask your bank to hold the mortgage in dollars rather than in euros, and go elsewhere if they won't do it.
Is this possible or is it just a load of arse? Surely if it was possible everyone would be doing it.

Minder

radioactiveman wrote: »

Hi,
Was just reading one of Eddie Hobb's books in which he states that in the event of US dollar interest rates being significantly lower than euro interest rates, that you should ask your bank to hold the mortgage in dollars rather than in euros, and go elsewhere if they won't do it.
Is this possible or is it just a load of arse? Surely if it was possible everyone would be doing it.

Not possible for your mortgage lender to denominate your existing loan in dollars. Who would take the interest rate and exchange rate risk - your lender? I doubt it.

But the idea isn't a non starter. There are international mortgage brokers who will negotiate dollar denominated mortgages for overseas customers. The set up is different to having an existing euro denominated mortgage changed to dollars. With an international broker, you borrow your capital requirements at the prevailing exchange rate. So if you need 200k euro, that's $330k. Terms are agreed - interest rates are set and you take the risk of interest rates and exchange rates. The lender wants $330k back over the term. You make the payments. Simple.

Except that fixed term dollar denominated mortgages are as rare as rocking horse sh1t. Think about that for a minute. The federal reserve is printing monopoly money. Currently rates are low but the rate of growth of the money supply is heavily inflationary. Monetary intervention in financial markets has yet to be proven to work - so rates may stay low for a while, but will eventually have to rise to counteract the inflationary effects of rampant money growth. Would you want a mortgage with that kind of exposure?

Also the banking sector in the US is currently under all sorts of pressure. Rumours of big banks on the verge of collapse - Bear Stearns? New emergency liquidity facilities are being made available almost weekly. What happens to your mortgage if your lender becomes bankrupt - likely that your debt would be sold to a third party - will that third party accept the terms that you negotiated with your original lender - probably, but would you want that risk? You can't pop down to the local branch for a chat about it.

So it would be an attractive proposition if the interest rate could be fixed for the term of the loan. Paying a premium for that would be worth considering imo. Dollar will continue to decline as the euro appreciates. But interest rates in the US will have to rise at some point.

radioactiveman

Thanks I never thought of it from the bank's point of view. I suppose the fact that the asset (for them) would be in dollars would mean it would only be an international/US bank that would do it, which is a bit risky for most people. If an Irish bank did offer though it would be very attractive while the rate are low.

portomar

big boys, im talking capitalist with a capital capital have things called carry trades, borrow cash in yen at .5%, throw it into some assett in a higher yield currency (aussie/kiwi for example) and make the spread. problem is, as soon as the curency shifts it can wipe them out. you're essentialy proposing to bet your house on the same thing. crazy.