In recent months, not only have companies from the financial and automotive sectors come under the wheels, some currencies have lost their strength in the wake of the economic crisis. The increasing pressure felt by national currencies such as the dollar or the pound sterling has a positive effect on German real estate and mortgage lenders in the form of the foreign currency loan – at least at first glance. For though some financial advisers and intermediaries try to make this form of construction money palatable to their clients, the risks of a foreign currency loan must not be neglected.
Mortgage lenders profit
In principle, mortgage lenders profit from two points at this point. Number 1: Due to a “consumer-friendly” interest rate policy of the Landesbanks in the affected currency areas, loans are currently particularly favorable. The Fed’s interest rate cut in the US is leading to a reduction in loans that German mortgage lenders can wait for a long time. This way, the interest rate of the Eurozone can be tricked. Advantage number 2 relates to the conversion of the euro to the target currency. If, for example, the US dollar continues to come under pressure and loses value, borrowers will have to repay less (a $ 100,000 loan will be cheaper by just 1 cent if the euro rises).
The risks of the foreign currency loan
But despite these advantages, it is worth taking a closer look at the risks of the foreign currency loan. Basically, every mortgage lender has to ask themselves the question, if the target currencies can sink even further or if a long-term recovery can be expected. In the latter case, of course, this leads to a significant increase in the cost of mortgage lending. And those who borrow with flexible interest rates must also keep an eye on central bank policies. A low-interest-rate policy can not last forever.