Foreign currency or Expat Home loans – what to look out for if you have one
Over the past year I’ve had many clients buying new properties where we are looking to source a new loan. In a few cases they have had existing debt on an existing property where the loan is an Expat Loan and they have asked what they should do with it?
In the recent booming years of debt, the early part of this decade the big four Australian banks, CBA, Westpac, NAB and ANZ, all had a retail presence in Asia. They were all promoting offshore or Expat loans and to be frank, on face value they looked very attractive.
So, if you still have one of these loans, what questions should you be asking?
Firstly, the loans had the option of having the debt in a choice of currencies, S$, HK$ or AU$, so which did you choose? The rate for the loan was dependent on the currency, so if you chose HK$ you may have had a very low rate, but what about the currency fluctuation?
With offshore loans, they generally (in all cases that I have seen) have a potential Margin Call. Yes, so if the currency doesn’t perform in the way you expect and the Loan to Value Ratio increases from 70% to 85% (or worse) then you get 14 days to bring the loan back under the nominated amount – in a couple of cases I’ve seen, this has amounted to AU$100,000 in one case!
In addition to the margin call issues, I’ve a couple of clients who have these loans and have now recently repatriated to Australia, when they have read the small print, they have realised that only expats qualify for the loan, so they have been provided 90 days to refinance. In some cases, this is not an issue, but in one case the client had just retired, so knowing your long-term plan is vitally important.
What other issues are lurking in the small print? When you took out the loan, was it a 30-year loan, or a rolling 5-year loan? In ALL cases that I have seen, the client assumed it was a 30-year loan, when in fact it was a rolling 5-year loan. So, what happens at the 5-year anniversary? That depends…
Who now owns the loan, NAB and ANZ have sold their loan books, CBA and Westpac are closing loans at maturity (5-year maturity), in many cases (if not all). The key here is that it is not your choice what happens, it’s up to the lender, whoever that may be!
So, if you have one of these loans, is it suitable for ALL of your requirements and are you in control? If you are not certain, please contact us and we can assist you to find out.