To finance real estate apart from the classical forms such as the annuity and the fixed-rate loan and the option to add a foreign currency loan. For a foreign currency loan, the loan was not included in the national currency, but a foreign currency such as in Swiss francs, U.S. dollars or Japanese yen.
The borrower goes to the foreign currency loan in fact such a thing as a wager.
He speculated that he repay the foreign currency rate changes must ultimately less money than if he had taken out a normal mortgage.
This form of financing a property is generally suitable only for borrowers who do not shy away from risk and act like speculative.
In general, foreign currency loans will be issued as a bullet loan. That is, while running the real estate loan, including interest, are repaid. To repay the loan at maturity a return of capital is used, such as a unit-linked life insurance. Are the favorable capital market conditions, it may be that the borrower will benefit from interest rate fluctuations and can exploit advantages. In the best case, the borrower in a foreign currency loan to pay back less than a “standard mortgage”.
Where there is light, there is shadow
The risk of a foreign currency loan should not be underestimated. The developments in the exchange rates are not predictable. All interest and principal payments made in foreign currency and an unfavorable exchange rate development of not only melts the potential interest savings. It is equally possible that the foreign currency loan will ultimately more expensive. Reason alone should borrowers who take out foreign currency loans as mortgage, always have enough equity in the back. For the financing of their own four walls foreign currency loans are not suitable.
For borrowers who want to fulfill the dream of your own four walls, the traditional real estate lending in the form of an annuity loan, the more predictable and better version, which should of course always used with an appropriate equity in the back.