The practice of a multi currency mortgage involves using the fluctuations in currency exchange rates to obtain the best interest rates on mortgage repayments. Switching a mortgage into a different currency when beneficial changes in foreign exchange occur, can theoretically reduce the amount of the loan, along with the amount of interest due to be paid on the loan.
Just as mortgages that are obtained in foreign countries for purchasing foreign property reflect the interest rates of that particular market, multi currency mortgages are designed to obtain the best conditions of the exchange market to the benefit of the client.
The ideal moment to switch between currencies is decided by specialist financial brokers, with a comprehensive understanding of the exchange market. Due to the volatile fluctuations of currency exchange rates, mortgages based on these principles are entirely reliant upon the direction of exchange rate movements and the specialist knowledge of the broker.
Many currencies may be used in multi currency mortgages, although most commonly they tend to switch between the Pound Sterling, US dollars, Japanese Yen, Euros and Swiss Francs. While it may seem like an ideal practice for reduced rate mortgage payments, many risks can be associated with these loans.
As the interest rates and payments change to reflect the value of each currency, fees and commissions are likely to be attached to each exchange. Ensuring a capped limit on the fluctuation can assist with reducing the potential losses if a currency fluctuates unfavourably against the client. Restrictions on the number of times a currency can be changed in a set period of time can also assist with avoiding excessive losses in exchange fees.
Due to the high risks and potential losses involved, multi currency mortgages are not suitable for everyone. Property investors with a good understanding of foreign and financial markets have a better chance of realising the benefits of these unique mortgages.
With suitable risk assessment carried out, along with contracting the services of a highly experienced broker, the benefits of a multi currency mortgage can lead to an increased savings, positive profits and tax advantages.