Very good thinking batman! I would never have dreamed all that up, too complicated for my little peanut brain, i would have blown a fuse working it out, but now the logic appears to me! thanksquidsin wrote:a piece of advice.
if doing this to benefit from better interest rate in SG, suggest you open a FX trading account and hedge your downside risk in the event the AU$ drops against S$. Example:
Mortgage AU$200,000
Convert to S$ at 1.10 = S$220,000
6 months time AU$ / S$ drops to 1.02 , your mortgage is equiv AU$ 215,600 - you're A$ 15,600 offside..
Solution...
When you convert the mortgage to S$, sell AU$ 200,000 v S$ at the same time, near price (this is your hedge) - this can be done through an on-line trading account such as Saxo. Their spot FX trades can be held on swap for an eternity. When you decide to exit the S$ mortgage, close the FX position at the same time and the profit/loss on both will offset each other.
To take an FX swap on, you only need to lay down 2% in margin of your trade, so in the above case 200,000 * 2% = A$4,000. However, you'll need to ensure you keep enough margin in your account to cover unrealised losses if the market moves the other way. Don't worry though cos the principal on your mortgage will be moving down the otherway.
In the end, you'll have benefited from the interest rate differential, having offset the FX risk.
Good luck !
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