Media type · Exchange rate between loan and income currency
Currency mortgage
A loan in a currency different from the income used to repay it.
Key facts
| Risk | Exchange rate between loan and income currency |
|---|---|
| Payment | Fixed in the loan currency, variable at home |
| Balance | Home-currency value moves with the rate |
| Lender rules | Income currency and hedging may matter |
| Stress | Model an adverse move |
How the risk reaches the payment
The lender debits a fixed amount in the loan currency. The borrower converts income into that currency, so the cost at home depends on the rate on the payment date.
The same rate also changes the home-currency value of the outstanding balance. A weaker home currency makes early repayment more expensive as well as raising the monthly cost.
Frequently asked questions
Why take a loan in another currency?
The rate can be lower, and the loan may be the only option for a property in that market. The trade-off is exchange-rate risk.
Can the loan be switched to the home currency later?
Refinancing may be possible, subject to eligibility, fees and the lender's willingness. It is not a reliable fallback in a crisis.