HK Mortgage for Oz Pilots?

[flyboy007]

Just wondering whether any Oz based Cathay guys have taken out a Mortgage from Hong Kong to take advantage of the interest rates? Or if it is possible? 3.5% seems a little more acceptable to me than 8.5!

Cheers

[arse]

Be very careful!

There are lots of advantages to foreign currency mortgages i.e. the lower interest rates, but there are many perils. A Cathay gentlemen recently took out a 70% USD mortgage on his Australian property when the AUD was at 0.98c USD. The AUD then plummetted (now 0.69c) and the bank asked him to top up his account back to the 70% level which cost him a huge wack of dollars that he didn't have. Of course, had he had the mortgage in AUD rather than USD, he would have made a significant paper gain!

Don't be fooled by just the low interest rate!

[TruBlu351]

They can be good, but as mentioned they can bite you in the A$$ big time.

Bit long winded below, but I wish I'd had some extra gouge on the finer details when investigating what to look for in a mortgage.

I'm on my 2nd, but rule #1 is be conservative......especially in these recent times. If in any doubt, throw it back into your base currency, which is also a double edged statement......explained below. Rule #2, currency shifts take precidence over interest rate savings!

I've saved quite a bit of cash, BUT that's because I watch it every day. Those fools that don't bother to watch the currency shifts are nuts.

Eg: AUD$300,000 exchanged over at 7:1 last month and forgotten about will now cost AUD$396,000 @ 5.3:1............and ALL IN JUST OVER ONE MONTH'S currecy shift! However, if it had gone the other way, you'd now owe only AUD$227,000.

The max lending ratios for overseas properties with multiple currency flexability will typically be 70-75% of assessed value.......so be ready for a 25-30% deposit. As mentioned above, if the LR increases (due currency shift), they will ask you to cough up the cash to bring it back down to 75%, ie: ~AUD$96,000!! If you have a significant savings deposit with the bank you can use this as a type of bond.....still your $$, but they won't hit you for the "Top Up" if the overall LR (including your savings) is still below ~75%......but you will no longer have access to this cash until the currency shifts back down. Try and make up your AUD$96K from your cheaper interest rate!! CANNOT!

"Base Currency" is typically the currency the house is in, but if you're getting paid in HKD, this can also be looked at as your base currency.....but only if you're really planning on living here for a LONG time ;) ie: what you owe stays relative to what you earn.

The current AUD interest rate at my bank is 7.9%, taking into account the recent RBA cut of 1%. Yesterday's paper predicts that there may be additional cuts up to about 2% by middle of next year.

Few tips:
I've found that Lloyds TSB (UK bank) provides the most flexible mortgage by far. It is also the most expensive to setup.....but you can make this up later with it's flexibility.

ie: The mortgage establishment fee is about 0.5% of how much you borrow, plus you pay for their solicitors and your own, whereas most Oz banks in Asis simply charge you a flat fee of about AUD$500.

eg: AUD$300K mortgage setup fees with Lloys will cost about AUD$4000 :eek:
($1500 establishment, $1500 their solicitors, $500 your solicitor plus extra crap). BUT, this can be simply made up in ONE switch from say 6.0:1 to only 6.1:1......a very small shift!!

What's of prime importance is your flexibility to switch.....whenever and how often you like. Some banks claim flexibility, but ask them, "How many times can I switch WITHIN a month"? Lloys will do it as often as you like during business hours (2 free per year and extra ones are about HKD$1000, but when you make at least AUD$5000 per switch it's pocket change). Some banks say you can have unlimited switches but with a CAVEAT of only ONE switch per month which is very limiting when you want to get in and get out!!

Another item to look at is the bank's INTEREST RATE MARGIN. ie: base rate for HKD lat week was about 3.8% (with a 1 month rollever) and AUD was about 7.5%. Banks then add a margin on this which on average is 1%, ie: you now pay 4.8% and 8.5%. Some banks charge 1.5%, others give you a 0.75% intro rate for first 3 years. You can haggle with them on this, but 1% is OK.

Lloyds mortgages are interest only, others are principle & interest and some are mixed at your request. (ie: first 5 interest only, last 20 = P&I). Even thought you're on interest only, if you save (I won't say invest at the moment :} ) the rest, as if you're paying principle too, at a rate higher than the mortgage, then you'll save more longterm too.

What currencies do you have access too?
Lloyds has them all! Most Oz banks in Asia only provide you access to AUD, HKD and USD.....even thought they may SAY they deal in other currencies, they may not let you into them. Having access to GBP, EURO, CHF and give you more flexability.

Payback Options?
Lloyds and CBA let you pay the whole lot back the following day with no penalty. Others say you can't pay off any principle in the first 2 years etc and have big fees if you get our early.

Moving back to Oz?
Will they still let you keep the mortgage AND switch currencies? Some banks will refinance you with their Oz counterparts. Others will let you keep the mortgage but will stop your switching ability. Lloyds will stop your switching. I've found CBA Asia to be quite flexible here.

You'll still need a HK bank to send funds up to. eg: you can't go to an NAB branch in Oz and pay your mortgage for NAB Asia. They are quite separate entities when it comes to this.

There are tax implications regarding having an overseas crrency mortage and living in Oz. I think you need to pay 10% extra OF the interest rate to the government as is it a kind of foreign investment. BUT who knows!!?

Currency Switch Margins?
How much do they pad up their exchange rates for their own benefit? ie: some banks claim unlimited free switches, but they may take a slice of cake by giving you a poor exchange rate each switch. Something to look into anyway.

There are companies in HK who can provide advice on your mortage switching, but I've found them VERY slow to react in a rapidly changing market. They're OK for long term advice, but they may not look at your portfolio until your next mortage rollover period (ie: you can pay monthy, quarterly etc).........by which time you could already owe an extra $100K! So be VERY proactive and watch it yourself too.

Hope that gives you some food for thought :ok: They are great, but just don't burn yourself!

Few links:

Calculators: Loan repayments - moneymanager.com.au (http://www.moneymanager.com.au/home-loans/calculators/loan-repayments-calculator.html)

Sign up for the daily and weely email commentaries. The INTRACTIVE charts are great.

Oz Forex Foreign Exchange (http://www.ozforex.com.au/)

[404 Titan]

arse

I think I was talking to this gentlemen just the other day about this.:eek::uhoh:

[flyboy007]

Guys, cheers for the info. Tru Blu, great post cheers. Thanks for taking the time to reply. I am aware that this may be a double edge sword.wrt currency shifts etc. It's something I need to look further into, but worthy of investigation.
All the best

[Frogman1484]

I've just added 50K to my mortgage, the Fo I flew with the other day did the same.

Once a fund property fund manager told to keep the mortgage in the same currancy as the property and if I thought the currency was going to move one way or another,,,take out a currency option investment!!!:}

[5bars]

You now need 50% deposit to buy Aust Property through CBA HK.Good luck you greedy people.

[hongkongfooey]

Just wondering whether any Oz based Cathay guys have taken out a Mortgage from Hong Kong

Hey, no expert by any means, but what are you going to do when they ask to see your HKID card ? As far as I am aware, non residents CANNOT apply for a HK mortgage, different matter if you were living here, took out the mortgage, and then went home, you can keep HK mortgage.

Bottom line, if you want the cheap rates.....come and inhale the " good " air like the rest of us :rolleyes:

But would'nt it be great if everyone could stick it up those thieving :mad:'s back home :ok:

[Guava Tree]

My granny who was born in 1896 and so had painful awareness of the thirties depression told it like that,("Never a Lender nor a Borrower be") plus if you have any money keep it inside the mattress (all my youthful but still reasonable protestations were firmly rejected). Don't go buying anything coz like it or not ,everything is falling , except the day to day stuff (food etc) that you can't invest in anyway.

[TruBlu351]

Good call hongkongfooey!...........had soem dislxeia wehn I raed taht!

No HKID (HK residency) = No mortgage from HK bank. No ways around that one.

[flyboy007]

HK Foory, That's one of my questions: I wasn't sure!! Cheers all