Anyone thinks it's good idea to move mortgage from Oz to sg?

[June Eleanna]

hi all..
hope u had settled down well so far. Had a couple of friends who just relocated from melbourne to singapore and loving it here!

Anyone thinks it's a good idea to bring over mortgage from Oz to singapore? sgd interest rates are way cheaper..

Depends on the location of the property back in oz, existing loan to value, etc.

Email at juneong@westpac.com.au

[sierra2469alpha]

Hmmm...not sure if this is an ad or not. If not, then PM me as I have done extensive research on this. Mr. P

[Strong Eagle]

I know of several people who did this and just got killed when the Oz dollar dropped... the banks insisted on a top up... several times... because the loan to equity value was too large.

[sierra2469alpha]

Wise words SE The secret is a decent hedging mechanism (extremely complex and not entirely risk free).

[quidsin]

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 !

[ksl]

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 !

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! thanks

[sierra2469alpha]

Quidsin - excellent post - this is exactly what I was alluding to in my post - you really do need to know what you're doing (as you obviously do). I considered butterflying it in order to prevent a whammy one the up (or down!) side.

I don't use Saxo - although I might look into them - how do you find them?

Cheers, Mr. P

[Nath21]

Dont gamble with your biggest debt you will ever own on two very fluctuating currencies. Australia is a small country yet it is the sixth traded currency in the world because it speculative commodity based currency. Even the guys in the previous post who know what they are doing usually stuff hedging up (there is still risk involved). On top whats the interest rate spread difference? I reset my loan in Aus at 4.95% Singapore had an introductory rate of 1.5% but it reset at +3 over bond rate so wheres the saving?

[quidsin]

The saving in interest between 5% and 2.5% is considerable, believe me. When you look at your statement and see the amount of interest to pay vesus capital repayment, then you see the benefits.

As a ballpark figure. 5% will be split 65% interest and 35% capital repayment. At 2.5% it's the reverse...

If you take those steps mentioned above by me earlier, and also lock in your quarterly repayments for the term, then you can't go far wrong i'm afraid.

[Nath21]

Firstly your holding an open contract and paying on 2% to open it. To hold indefinately as the previous author states you need to pay interst daily on the holding amount $200,000 (you didnt think someone was going to lend you $200,000 to forex trade for $4,000 only did you). Most fx trades are close din 1-5 days. Also do you have the time available to execute trades on resultant pip movement? or are you relying on an a firm? Because this will cost to and you also have to have the time of course because a big fluctauation without executing trades on one side will make your hedge ineffective. Im happy for someone to argue different here. This aint an easy game people have lost alot of money. If I had to ask a question about how to do it I would argue you shouldnt be doing it.

Your also accepting Singapore rates will be lower than australian rates in the future - thats a risk you aint hedging even if you get the hedge right.

[quidsin]

Nath21,

Q. Firstly your holding an open contract and paying on 2% to open it. To hold indefinately as the previous author states you need to pay interst daily on the holding amount $200,000.

A. Wrong, you don'tr pay any interest to the FX broker, they do however pay you interest on the margin you have deposited on a/c.


Q. Most fx trades are close din 1-5 days. Also do you have the time available to execute trades on resultant pip movement? or are you relying on an a firm? Because this will cost to and you also have to have the time of course because a big fluctauation without executing trades on one side will make your hedge ineffective.

A. Wrong again. Online FX trading is done on Swap. This means you open a position and the P&L moves dailiy until you close it out, similar to futures but the fx doesn't have an expiry. Your not exchanging the physical cash on settlement every 2/3rd day like a spot trade. No fees involved with this either, the broker makes his money on the spread i.e. real FX rate is: 1.1025 bid / 1.1030 / offer (spread = 5 pips) - the brokers spread may be 8 pips and his fee is therefore 3 pips. Don't sound much, but if someone is trading a $1m FX trade (this is small size for any FX trader) then you'll see that 3pips is quite a nice profit for doing nothing. You can be guaranteed that the spread offered by a retail broker in the spot market (under $1m) will be at least 100 pips below the real interbank market where as swap quotes the interbank market. As an example, checkout the rates offered by moneycorp (retail broker) and then compare to online FX firm such as Saxo - you'll see what I mean

Re. time available to execute trades. We're not living in the dark ages anymore, should you want to exist your position at any point then you place an automated order within the system such as a 'limit order' (take profit) or 'stop loss' order (take loss) - very easy, even a child could do it.

[Nath21]

So be up front what are the total cost then for a $200k fx trade held for open for say 7years? Are you saying its only $4k?

What is the time effort he will have to put into the fx trade on an ongoing basis? Does he have to watch this once a day (as you say a child could do it) but he does have to watch to execute trades right?

Do you think knowing what you are talking about an amateur should get involved in this type of trading?

Do you agree that his is still taking interst rate movement risk?

Im still not convincef Singapore rates are chepaer ive looked at DBS and UOB and they have one year chep rates and then reset at SIBOR + so it ends up at arfound 4.5% I think

[quidsin]

Interest rates change, therefore the currency of your mortgage is likely to change as well so you're always getting the lowest interest rate possible. As an example, for now it could be SGD but then JPY may be more appealing in the future if SGD rates rise etc.

Time effort is merely having 'awareness' of where the market is each day....1min. The only point you can come unstuck is if you run out of margin to cover the FX hedge and you then get closed out of your position , then you're not hedged and exposed. You therefore need to know the point / price where you will require more margin to cover the downside - this is the 1min check

Depends what you class as an amateur. All I'll say is seek professional advice in any big money decisions you intend to make.

My SGD interst rate is currently 2.4% on a foreign ccy mortgage against GBP with RBS, i don't think DBS or UOB do foreign ccy mortgages.