I am looking for a lending institution who can offer a mortgage
denominated in a foreign currency (such as; euro, yen, British pound,
Swiss franc, etc). I am a US citizen and the property is in the USA. I
have found some companies in the UK that offer this only to UK
citizens buying property in Florida. These companies refer to it as a
"Currency Mortgage". Perhaps it is offered by other European banks
under a different name? My desire it to either enjoy low interest
rates or currency appreciation, perhaps even both.

The follow up question is alternatively can a US bank offer a mortgage
(in USD) on a property in Europe (Germany, France or Italy)?

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Clarification of Question by dermeister-ga on 26 Jan 2006 19:19 PST

I have tried currency futures trading but didn't like it: too much
volatility for one. (nothing quite like a daily 10% change in your
stake to distract you from your day job). Also, there are margin
requirements if you are out of the money alot. It also ties up capital
that would (already) be tied up with a mortgage. In addition, if I can
get a Japanese yen denominated mortgage then I could benefit from the
low yen lending rate. There may also be tax benefits, but I would need
to ask my CPA. In short, I am looking for a mortgage denominated in a
foreign currency.

Dermeister,

A cheaper alterantive may be taking out a dollar-denominated mortgage,
and then hedging the currency risk yourself.  If you really wanted to
get fancy, you could also hedge the interest rate risk.

Imagine this scenario.  You take out a $500,000 USD mortgage over X
years.  Only two things can happen:

(1)  value of the USD declines
(2)  value of the USD appreciates

If the value of the USD declines (as Warren Buffett predicts), then
you are a happy person.  Why?  Because your house payment gets cheaper
as time passes.

On the other hand, if the value of the USD appreciates, then you are Der Hosed.  

Hence, you could effect a hedge ---  an insurance policy  ---  against
a rising dollar.  To hedge $500,000 would only require a small deposit
in a discount futures account.

Voila!  A cheap US mortgage with no currency risk.


ron


P.S.  You should speak with a professional before effecting this
hedge.  This is like picking a surgeon----if you use a novice, you
could be very sorry later on.  Good luck!

Dermeister,
In general, banks will not make private mortgage loans in foreign
countries because they are not conversant with the legal requirements
and valuation of private realestate.  It is just not worth their time
and effort to get involved, to develop the expertise.  Furthermore, if
the loan goes bad, they would have the exchange risk of disposing of
the property on the foreign market, not to mention the hassle of
foreclosing in a foreign country.

As I understand the UK banks' websites about "currency mortgages", a
prime condition is that the mortgage is in the currency of the
borrower's income.  They will lend sterling to a sterling earner
secured by a Florida mortgage, for example, or offer a USD mortgage in
England to a USD earner resident there.
Alternatively, they will offer a sterling mortgage on a UK earner's UK
residence allowing him to pay cash for an apartment in Spain.
Maybe there are exceptions, but that is the way I read the sites.

Good luck, Myoarin