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Hi, this is Andrew Krauksts here with Australian Expat Loans, and today I just want to give
you a very quick tip and share with you some ideas on a very common question that I get
about foreign currency loans for Aussie Expats and Foreign Investors.
I’m going to use an example of if you were to buy a property for say around $715,000,
you would probably need for a foreign currency loan at least a 30% deposit. That’s the
minimum. For this example we’re using a 30% deposit, and then you’d probably be
looking at around a $500,000 Australian home loan.
I just want to go through and share with you some of the mechanics of a foreign currency
loan, which a lot of people don’t really understand, especially the pro’s, but also
the con’s. I think most people are aware of the pro’s of getting a cheap interest
rate.
If you were to draw down a $500,000 home loan – and when I say $500,000, I mean in Aussie
dollars, because the purchase price of the property is going to be in Australian dollars,
for this example $715,000 – the lender will convert to the foreign currency that you wish.
So that $500,000 will be drawn down and then converted.
Now, obviously the pro’s about it is that you’re going to get a very cheap rate compared
to the Australian home loan interest rate at a fraction of the cost. That’s obviously
one of the reasons why we get asked a lot of questions about foreign currency loans
for Australian Expats and Foreign Investors.
The one thing that people don’t realize is the dangers involved with a foreign currency
loan. That is if, for example, the currency that you’ve drawn down moves against you,
and the dollar moves against you, it can actually increase your home loan from $500,000 up to
$600,000, $700,000 or whatever the case may be.
The issue there is that the danger is that you may be open to what’s called a margin
call. The lender might look at their position and say, “We’ve got a security valued
at $715,000. The home loan, because the currency has moved against you, is now worth $700,000,
so we need you to put in $200,000 cash or put up another security.”
Now, when I say you have to put in cash, the lender will probably give you only four to
five days to do that, so you really have to know your position and be able to come up
with that sort of money fast. Otherwise you could be in a terrible position of having
to sell and having nothing but a debt outstanding.
The good news about this scenario is that if the dollar moves in your favor, your $500,000
home loan – and this is what most people obviously hope for – may become $300,000
or $200,000, at which point you may convert it back to Australian dollars and you’ve
instantly wiped out $200,000.
But I just really wanted to explain the dangers, that if you aren’t aware about the margin
calls you can really get yourself into a lot of trouble, so I just wanted to make sure
that I got that message across today.
If after watching this video you have some further questions about foreign currency loans
and it is of interest to you because you’re a high net worth individual and you’re also
working with a licensed financial planner that can assist you with the risks involved
and making the right recommendations for you, by all means give us a call. I’d love to
chat with you further.
I hope you’ve gained some value out of that. I’ll look forward to seeing you inside the
next video with some more tips. Bye for now.