Can I Get a Mortgage Loan From a Foreign Bank?

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With lenders in countries like Japan and Switzerland offering some of the best property financing deals globally, many American investors are seriously thinking about ditching local lenders in search of more favorable mortgages. But is that even possible? Would a foreign bank give you a mortgage loan?

You can get a mortgage loan from a foreign bank regardless of whether the property you’re looking to finance is located in the US or overseas. However, you’ll likely need the services of a broker. Depending on the currency you choose, you may also need to hire a debt manager.

Read on for details on obtaining a mortgage from a foreign bank and the critical decisions you need to make during this process.

Can I Get a Mortgage Loan From a Foreign Bank?

Is it possible to get a mortgage loan and save money from a foreign bank? There are two parts to this question, depending on where the property you’re looking to finance is located. Let’s address each piece separately.

Can a US Citizen Get a Mortgage Loan From a Foreign Bank To Finance Property Within the US?

A US citizen may obtain a mortgage loan from a foreign bank to finance real estate located in the US. In most cases, this is easier with banks registered in a country within the European Union and those that run subsidiaries in the US.

However, not all foreign banks will be willing to give you a mortgage on property located in the US. Thus, you’ll want to find out in advance whether the foreign lender you’re eyeing works with foreign nationals.

Can a US Citizen Get a Mortgage Loan From a Foreign Bank To Finance Property Outside of the US?

A US citizen can buy property abroad with a mortgage from a bank registered in a foreign country even if you’re not a citizen of the country the where:

• Bank is registered.
• The property you’re looking to buy is located.

For clarity purposes, let’s use an example to illustrate the above statement. As a US resident, you can finance property in the UK (for instance) with a mortgage obtained from a bank registered in China, even if you don’t have citizenship in the UK or China. 

Note: Generally, it’s easier to obtain a foreign mortgage to finance property abroad if the property is a popular tourist destination because such property is likely to retain its value over time. You will want to check with the best 1031 exchange companies to see if an exchange is possible outside of US territories.

How to Qualify for a Foreign Bank Mortgage

There is a lot of regulation involved with qualifying for a foreign bank mortgage as a US citizen. The first thing you need to do is open an account with the institution. While there are a lot of advantages and disadvantages of online banking, you will need an account.

The second step would be passing a credit check, which will assess your financial and reputational risks associated with this type of debt service.

Finally, if all goes well in both cases, they’ll sign off on your mortgage application and proceed with processing it or deny it, depending on their decision.

Can I Use Passive Income?

If you are wondering can passive income be used to qualify for a mortgage, it really depends on the lender and the bank. Some banks will allow this income to be used to help with loan qualifications. Others may not however. You must check with each bank because each have their own regulations on this issue.

Is a Foreign Bank Mortgage More Expensive than a Traditional Mortgage?

The short answer is yes; they are more expensive. The interest rates for a foreign bank mortgage will be higher than those of a traditional home loan, and the fees that you’ll have to pay every month may also differ from what you’re used to paying due to currency conversion rates.

Some interest rates are not as competitive as what you may find with domestic lenders, and this is something to be aware of if you are planning on refinancing your mortgage any time soon.

In addition, it’s important to remember that although some foreign banks will offer loans for foreigners without requiring a down payment, there may still be restrictions based on nationality.

For instance, some countries could have quotas placed on how much they can loan out each year or certain types of property which aren’t eligible under their policies. Therefore, you still may have to know how to save for a house fast if your foreign bank mortgage comes up short.

It’s best to consult a financial advisor before applying for one of these mortgages, so you know exactly what things like forex conversion rates and other fees apply.

However, there is one key factor in favor of foreign bank mortgages: Most of the time, they do not require any down payments. When applying for these loans, all your assets can go towards covering the costs, or you can use them as collateral against which some other type of security has been pledged. This makes it easier for new expats who want their homes in Canada but don’t have enough money saved up yet because they’ve just arrived on the shores of this country with a suitcase. It’s one of the low risk ways to invest in real estate due to favorable terms.

Will My Credit Score be Affected by Getting a Foreign Bank Loan?

If you apply for a foreign bank loan, your credit score may be affected. You might also need to provide additional information such as your address in the last five years and employment status over that same period of time, which you’ll have to track down yourself if necessary.

But unlike traditional bank mortgages which can take up a significant amount of personal credit score points for houses or other properties purchased with financing, these type of loans will not impact your scores. If you are trying to improve your credit score, you won’t have to worry as much with this type of loan. They’re usually secured by some other asset like stocks or shares from an investment account at another institution than where you took out the loan – so it’s less risky financially for banks too.

Should You Use a Broker When Getting an Overseas Mortgage?

When getting an overseas mortgage, there are two ways to go about it. You can either approach potential lenders by yourself or hire a broker. See the differences of mortgage banker vs. mortgage broker.

Even though hiring a broker may mean incurring extra costs to source your financing, it’s highly recommended. Sometimes, hiring an accountant can help navigate these areas.

Advantages to using a broker for overseas mortgage:

For starters, a broker will help you narrow down your lenders by pinpointing overseas banks that lend to non-residents on favorable terms. Brokers that deal with overseas mortgages are knowledgeable and are worth the extra cost.

Once you have your options ready, they’ll point you to the best deals in terms of interest rates, payment terms, and so on. This is important because variations in data protection laws can mean that your domestic credit score won’t necessarily apply. Put otherwise; you might not qualify for the same mortgage deal as you would if you were applying for local financing. Knowing $40,000 a year is how much per hour will go further with an overseas mortgage than domestic is a plus.

Lastly, a broker may give you an idea of the regulatory environment in the country where the foreign lender you’re working with is registered. This way, you’ll be prepared for any legal issues that may arise from your relationship with the foreign lender.

Should You Choose a Foreign Currency Mortgage When Seeking Financing From a Foreign Bank?

The currency the mortgage is repayable in is always a critical consideration for anyone contemplating getting financing from a foreign bank. As a US citizen, you can either get a mortgage loan repayable in USD or opt for a foreign currency mortgage. 

Since information on the former is readily available, let’s talk a bit more about foreign currency mortgages. Suppose you haven’t already gathered the definition of a foreign currency mortgage from the above section. In that case, it refers to a mortgage loan that’s repayable in a different currency than that of the borrower’s resident country. Information on what is visa provisioning service as a way to pay may be an option.

Both corporations and individuals can use mortgages of this type, but two critical factors to consider are interest and potential capital losses or savings.

Interest

Interest for a foreign currency mortgage is charged based on the rates that apply to that currency and not those of the borrower’s domestic currency. 

For instance, if you’re in the US and obtain a mortgage from a UK bank that’s repayable in GBP, the levied interest will be based on the rates that apply to the GBP and not USD. Why is this important? In a phrase: Currency exchange rates. 

You should only get your mortgage in foreign currency if the interest charged on that currency is substantially lower than what you would get on a mortgage obtained in USD. 

Additionally, even though you are a citizen of the United States, you still will be liable for the foreign currency mortgage. 

Potential Capital Losses or Savings

Fluctuations in currency exchange rates can also increase or decrease the value of your debt. While the future of money remains constant, your debt won’t. If your domestic currency weakens against the foreign currency, it’ll cost you more to repay the mortgage, which translates to a capital loss. On the other hand, if your monetary domestic currency gains against the foreign currency, your loan would cost less to repay, giving rise to a capital saving.

While fluctuations in currency exchange rates may not make too much of a difference when the mortgage is relatively small, the effect is usually more pronounced when large sums of money are involved. This is precisely why many borrowers use hedging to mitigate the risk of incurring exchange-rate-related losses when borrowing large sums of money. Currencies rise and fall all the time, which this is why foreign currency mortgage can be risky. As a result, management practices such as hedging are used. 

Hedging is done through multi-currency liability management, giving rise to a less risky type of debt known as a managed currency mortgage. Let’s take a deeper look at this type of foreign currency mortgage in the next section.

How a Managed Currency Mortgage Works

With a managed currency mortgage, you hire a specialized currency manager to oversee the loan on your behalf via what’s known as the limited power of attorney. Essentially, the limited power of attorney is a legally binding agreement that authorizes a portfolio manager to execute specific agreed-upon investment strategies and routine functions on your behalf without having to contact you.

When you “hand over” your mortgage management to a currency manager, they’ll use their expertise to switch your debt between foreign currencies depending on how they gain/lose against your domestic currency.

You pay the mortgage in the same way as a traditional one with EFT, starter checks, or basic banking functions.

The Benefits of a Managed Currency Mortgage

A currency manager will switch your mortgage into a currency that subsequently loses against your base currency. They can then switch it back to the base currency or any other weakening currency at a more favorable exchange rate, effectively lowering your debt’s value. They can also choose currencies with significantly lower interest rates than the mortgage’s base currency to help you to save on interest.

By combining interest rate savings and debt reduction, your currency manager can potentially leverage changes in currency markets to pay off your loan within its normal life as you pay on an interest-only basis. This means that you can buy a substantially more expensive property and only pay on the mortgage interest than what you can with a traditional mortgage. Your currency manager can help offset the principal through their management. It’s one of the best ways to invest 50k in real estate or more.

With buying a more expensive property comes higher equity appreciation as well, depending on the area.

Some managers also provide financial products that help you stay on top of payments. This way, you never miss a payment and don’t incur late payment penalties.

Potential Disadvantages of a Managed Currency Mortgage

Managed currency mortgages come with some risk. If you choose this type of mortgage, you need to be ready to accept an increase in your debt’s value if the currency market experiences adverse movements. Fortunately, debt increases triggered by fluctuations in the currency markets are often limited.

How Many People Have Managed Currency Mortgages in the US?

In the US, managed currency mortgages made up 0.002% of total mortgage originations in 2016. Managed currency mortgages have increased as people consider more conservative ways to go through with their financial plans due to uncertainties in the market. If you are trying to figure out how to buy a house with Chapter 13 bankruptcy, this may not be for you. However, these types of mortgages allow borrowers to take advantage of currency fluctuations.

Related Questions:

Mortgage Loans from Foreign Banks

We’ve established that it’s possible to get a mortgage loan from a foreign bank for property within and outside of the US. We’ve also discussed why it’s best to work with a broker during this process. 

Whether you opt for a foreign currency mortgage is entirely up to you, but you should keep in mind that these mortgages come with the risk of liability due to fluctuations in currency exchange rates. Opting for a managed foreign currency mortgage may help mitigate this risk, but it doesn’t eliminate it.