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Foreign Currency Mortgages

You sometimes hear of investors saying ‘I’m paid in US dollars so it is Ok to have a US dollar loan against an Australian property’.But is that the case?

Whilst it might be attractive to take on a US dollar loan because the interest rates are typically lower than the rates that apply to Australian dollar loans, but if you have your loan in a different currency to your asset, then you will be exposed to currency risk.

If the currency moves against you and your US dollars end up being worth less in AUD terms, your bank might ask you to ‘top up’ your security.If you breach the maximum LVR on the property you have purchased this will almost certainly be the case.In a worst-case scenario, if you are not able to provide additional security by way of cash or other assets, then the bank could decide to sell your property asset to pay off the mortgage.

As a general rule of investing, you should hold assets and matching liabilities in the same currency – so as to avoid currency risk.

If you are investing in the UK, it is Ok to take out a loan in GBP.If you own a property in Germany, it is Ok to borrow in Euro.But unless you have substantial wealth, you generally should steer clear of borrowing in one currency to fund a property purchase in another.