HK$ mortgage for US Home purchase ??

Hi yes I think it is very possible and quite easy, but you are confined to large international banks, US dollar loans are a good one, almost no currency risk speak to the bank though, they are the best ones to guide you. here is a little information from when I looked at it. Ultimately I did not transact, which is why I cannot help further.


http://www.expatbusinessservice.com/mortgages.html. Its not much, but gives you the basics, and dont worry ed, the site is a financial advisory site aimed at expats, not a message board or competitor

In this case I'd be happy to be wrong, but thinking of the mechanics involved, I think it is very hard to complete the rate arb contemplated here.

Mortgage loan is subject to heavy local regulation and national law. It is very unlikely you can find a HK bank that would accept US property as collateral for a mortgage loan.

If you want to borrow HKD from at US mortgage bank, I think it would be close to impossible. Even if you get it done, the rate is likely to be higher, not lower, due to the fact it would be a non-standard product.

The only possible way to complete the rate arb is to use HK based property as collateral to obtain HKD mortgage loan, then convert the HKD to USD and pay for you r Connecticut home by cash. But this way you will need 2 properties to support 1 loan.

Again, I hope I am wrong, because I would very much like to do the same.

Why would it be that hard, its just a classic carry trade, lots and lots of people do it with different assets, why would property be any more difficult than say an equity. I have a large unsecured lending facility with my bank, large enough to buy a smallish property in the US. excluding the current conditions, which has a higher beta, if I were to put the money into the equity market or the property market, and If your answer is the latter, why would a bank lend to me to do the former and not the latter. If you are buying a US asset, there is almost no currency risk if you are borrowing from a HK unit of an international bank, some liquidity issues perhaps with property, no more so than with domestic property, the only risk left is the price risk which accrues to the borrower not the bank anyway, the bank is left with default risk which it has to mitigate anyway anyway, that is the business it is in. Anyway see article



Minimising Your Mortgages Whilst Increasing Your Property Portfolio Using Intenational Currency Mortgages

By Craig Taunton


In today’s ever changing and innovative financial world, consumers have become used to being introduced to new and creative means of either making or saving money. This is no different when it comes to borrowing money.


There is a little known, alternative method of borrowing that is focused on allowing clients to significantly reduce their monthly outgoings whilst offering the potential to reduce capital borrowings over time. Traditionally if a client wants to borrow money to buy a property they would pay the local rates of wherever they were purchasing that property. This can be a hassle especially if you are not resident in the country in which you want to buy. Lenders are normally nervous of non residents, they charge extra interest if you are buying for investment purposes and they place all sorts of caveats and restrictions on what you can and can’t do with the property, these restrictions can very often lead to the purchase not going ahead as the ‘cons’ far outweigh the ‘pros’ of distance ownership.


Fortunately, for those of us based in Asia a lot of these barriers have now been broken down, as there are a number of large international banks that allow clients to purchase property in Australia, Canada, Dubai, France, Hong Kong, Thailand, New Zealand, Portugal, Spain, Singapore, the UK and US without having to leave home. Furthermore it has opened up a facility that allows you to release equity on existing property in certain jurisdictions’ that can be used for further property purchases or as you wish. These lenders will also allow clients to borrow in different currencies to that of their income or base asset and take advantage of [spam word detected], which can significantly reduce their outgoings.


The second objective of reducing capital borrowings is achieved by initially borrowing in a currency that is considered strong against your base asset at the point that you take the loan out and hoping that historic trends repeat themselves and that the currency weakens over time. Guidance on the most appropriate time to switch currency and make capital savings is vitally important in order to capitalise and reduce borrowings and is included in the service.


The way it works.

An example of this would be a client purchasing an investment property in the UK and borrowing GBP150 000 from a bank. If the client were to borrow in his base currency at six percent, his monthly repayment on an interest only loan would cost him GBP750 per month. This is assuming the client has opted for an interest only mortgage to keep the costs down and get the investment self supporting as he expects a rental yield of six percent from the property.


Allowing for agents to manage the property and for some essential maintenance, the client’s yield is actually reduced to five percent, which means that he has to make a contribution towards the property on a monthly basis. He justifies this to himself as he hopes for capital appreciation on the property over time, which will mean he has made a good investment when he sells.


If the same client takes advantage of a currency mortgage, and after some currency analysis he decided to borrow Swiss Francs, then he would be charged three percent rather than six percent, and so his monthly interest payment would be GBP 375, which even after his agent’s fees and essential maintenance means that he is in profit each month and the investment is self-sufficient.


Taking the difference between what the client would be paying in his base currency (GBP 750) and what he is paying in his selected currency (GBP 375); investing it acts as a perfect hedge against adverse currency fluctuations. The client would also be getting dual use of the asset as not only would he be getting capital appreciation on the property, he would also be getting participation from the savings, which, depending on his appetite for risk and market conditions, are creating a fund that can be used to repay the loan at some stage in the future.


In this particular example, the total cost of the house, if he were to use the traditional method would cost him GBP 425,000 over 25 years whereas utilising our philosophy it would cost him GBP 261,924, and he would have the loan fully paid off after 19 years.

(*the above calculation assumes interest rates remain unaltered throughout the term and that the client invested GBP 375 per month and received a modest return of seven percent per annum).


Profit potential

The major advantages of currency mortgages over and above traditional mortgages are that as well as reducing outgoings; clients can switch between currencies on a quarterly basis and therefore take advantage of weakening currencies, which in turn will reduce capital borrowings. This again is part of the service package that has been designed for the international property investor.


The relationship between the British pound and the Japanese yen over the last 10 years has been such that if a client got the timing absolutely perfect, then as well as reducing monthly interest payments by 75 percent against GBP rates, they would have also knocked off a staggering 35 percent from their loan. This is an ideal example of how currencies can work in the client’s favour.


It is important to understand that currency mortgages can also work against individuals. As such, when selecting the currency at the outset, sufficient analysis must be undertaken as to which currency is the most appropriate both from an interest rate basis and also from its strength in relation to the individual’s base currency. Furthermore, the whole mortgage package must be managed on a regular basis in order to make sure that both objectives are being achieved.

Double post. Sorry

Blonde, I would very much like to be wrong. I own US property, and I would very much like to fund it on HK rates.

However, rules and regulations regarding taking residential property as collateral is very different from country to country. It is not at all the same as taking financial security. The law regarding taking someones home is very different from taking pledged stocks or bonds. At institutional level, it maybe possible, but at retail level, it is quiet another story. At the very least, the bank needs to have proper local registration and licensing. Plus the legal enforcement capability to evict and repossess someone's home.

If you don't believe me, you can visit a bank branch and try it. If you succeed, please report back, I will follow your step. Matter of fact, I will call my own bank's mortgage department and make sure. If it can be done, I will report back, but I have a feeling that even if it can be done, it would be in some kind of partnership with a US bank, and the rate would be the same or higher.

On the other hand, if you can fund the HKD un-secured, then the problem is solved. Assuming the unsecured funding cost is that low.

You are over thinking it. and you are worrying about things that a bank has to worry about once for each market, before it standardizes ans creates a product for retail clients and benefits from economies of scale. These products are retail products, not institutional.


It doesn't make sense for a bank not to offer these kind of products, They face far more moral Hazzard wirth local unsecured lending than they would with secured lending, even if the property is overseas. My father bought property in Australia using financing obtained in Hong Kong and he did that in the early nineties, no partnership and at HK$ rates. More recently My friend has bought tons of property in Thailand with financing from HSBC Hong Kong and he is worried because the Thai Government keep tinkering with their property ownership laws and he is not sure whether he is the legal title holder.


If HSBC will underwrite a Thai mortgage, you can bet your bottom dollar they will underwrite a US one. You should re read the article I posted, its all there. and if you want the authors number I am pretty sure I can get hold of it. Its just a carry trade and people have been arbitraging interest rate differentials since we left the fixed exchange rate mechanism in the seventies using property and a multitude of other assets.


If your bank wont do it, you need to find one that will. HSBC underwrote my friends Thai investments.

you can do this but i suspect you'll need to do it thru an international bank. I know you can do it with RBS and Lloyds bank international. They have the capacity to value and take the collatreal - a local bank is unlikely to do that.


There are also bucket loads on mortgage brokers in HK who can sort this for you.

exactly. I really dont see what the problem is


http://www.hsbc.com.hk/1/2/hsbcpremier/assistance/banking-overseas


HSBC do it, check the link and call the number on Monday.

For my own interest, I called around to check into these loan. Here are my findings today:

1) They can be done, 2) they are not cheap.

For HKD - USD, there is almost no savings.

One of my bank's senior operations manager tells me that the mortgage collateral must be managed by a bank with proper local license/registration. the HK bank either sources the loan from US, package it with a FX swap, or pay the US sub a fee to manage the collateral.

The loan brokers go through the first route mostly. They are made for people who cannot easily obtain US based mortgage. Pricing is higher than US mortgage rate because the management fee charged is greater than the current FX swap discount. (currently at about -0.5% on my Reuters.)

Big multinationals with big HKD funding base, like HSBC, may go through the second method. i.e. fund the loan locally, and pay the US sub a fee to manange the collateral. Pricing depends very much on the internal transfer price.

I called a HSBC private banker friend to check into the rate. She told me it is very unlikely to be cheaper than the best rate I can find in the US. And there is a lot of paperwork. She could not give me a quote, but recons the rate is over 6, which is about 0.5% higher than what I can find from the US.

So dry well, so far. I don't know anybody at Citi, maybe they can do better, if some can help get an indication, please share.

well your experience differs from mine. I actually checked with my father today, and he obtained a 20 year mortgage in the early nineties to buy property in Sydney and did so at rates lower than what was being offered by high street banks in Australia back then, there were savings to be had, but he was not able to arb completely. He arranged it through Wardley, owned by HSBC and which is now HSBC private bank, he carried the currency risk, which would have been a nightmare if the loan was still in place. I haven't spoken to my friend who bought property in Thailand, So I dont know what his rates were like, but I know his banker was HSBC Hong Kong


I think it is very possible to get a mortgage on a foreign property, but I think the arb potential is probably very limited by the lender depending on size of the customer. i.e if you are Donald Trump, then no problems. Most of us however are not.

AUD is a completely different story. USD - AUD 10 year cross currency rate swap is -3%, tag on the HKD - USD spread of 0.5%, HKD - AUD cross funding is at -3.5%. My guess is the arranging bank will charge between 1 -2% p.a. to retail loan customer, that leaves you with about 1.5 -2.5% lower effective borrow rate. But HKD is not pegged to AUD, you will run currency risk with this arrangement.

HKD cross funding into USD is close to risk free. but my finding so far shows no arb. I will keep looking, but what I found so far is in line with what I expected, so I won't be looking too hard.

BTW, big difference between carry trade and arbitrage - notably that the latter is risk-free.

I found that the Lloyds claims to offer international mortgage service.

http://www.lloydstsb.com.hk/product/mortgage.asp

Hope the above link can help.