Has anyone tried to borrow from a bank in Taiwan to buy property in another country? I noticed ANZ will do that in Japan, so I looked at their site in Taiwan and it’s not really specific… anz.com/Taiwan/general/importantinfo.asp. Also HSBC seems to do it in other countries. Has anyone had any experience with that in Taiwan?
Have you considered the FOREX risk? This is what contributed to the Asian currency crisis.
First, I still don’t know if you can do it here, that’s why I posted.
But yes, with this kind of loan you are lent in the currency you are earning. The banks see that as a way of lessening the risk. I think that’s different from previously. So you borrow Taiwan dollars to buy a house in another country, for example NZ. Since you are earning Taiwan dollars to pay a Taiwanese loan your payments on the Taiwan mortgage don’t fluctuate according to the exchange rate.
The exchange rate is only a factor when buying and selling the house. So as well as timing the housing market to buy at a low (if it ever happens.) you also have to time the exchange rate so the Taiwan dollar happens to be high when you buy relative to the NZ dollar and low when you sell.
The interest rate difference is another factor. The difference between Taiwan and NZ is the reason for the loan. Interest rates in NZ are pretty high compared to Taiwan, but in another country like the US it may not be worth it. The figures have to be done to check whether it’s worth it.
And you may not live in Taiwan for the next 20 years. This is an issue. What happens? Do you remortgage with a NZ bank? Can you get away with paying the original low mortgage Taiwan loan, now with the exchange rate risk?
Supposing you can keep the original loan when you return home. Is the exchange rate risk worth it? Here’s my view of the costs per year.
Taiwan mortage is 2-3%.
NZ mortgate is 8-10%.
So the interest rate saving is about 6-7% of total per year. Agreed, it won’t stay like that for 20 years. But the fluctuation is predictable and not more than a few percent each year. So it’s highly likely you save on interest payments for the whole term. And if not then remortgage because low interest rates are the whole point.
Exchange rate risk: imagine the NZ currency drops 10%, and, in my view, it wouldn’t drop and stay for there for a year, more like a few months. Your repayments increase for that period by 10%. It’s up to the individual to guess how long the NZ currency will remain low. My guess is 20 years, never!
So there is a 20% currency fluctuation for a year, it’s a pretty bad case scenario. Your repayments increase by 20%. Your interest rate savings remain the same however. Which is bigger? I made the figures small because my maths is so bad, and I’ve ignored lots of details like fees etc.
Borrow NT1 000 000 to buy a house over 10 years. Repayments are NT100 000 plus 2% = NT102 000 per year. This is usually say $NZ 4 800 (NZ 1 = NT21). Then with an exchange rate fluctuation at 20% the extra cost is $NZ 960 for one year.
Interest rate saving is on the principal. With a 6% difference in rates the saving is 6% of NT 1 000 000 = $NT 60 000/$NZ 2857, which is much more than any extra costs caused by a change in the exchange rate.
If anyone with better maths can comment on this I’d be happy. I was never designed to work with figures.
Is the mortgage fixed or variable? This will move inversely with the exchange rate.
What you are describing is exactly why people financed overseas before the crisis.
But don’t let me stop you. You could win big. However, it generally is not a sound idea to finance a relatively illiquid, risky asset valued in one currency, with an absolute liability in another currency. If your revenue stream is in the same currency as the liability, that does a lot to mitigate the risks, but there are still a lot of other risks to manage (as you mention). The reason you get a return off of playing with the term structure of interest rates is because they are compensating you for the risk. Any economic rents above that would have been for the most part arbitraged out by the professionals.
Anyway, the bank may balk at lending without an asset to recover within thier juristiction.
so MR chicken did you get any loans and buy overseas?