Borrowing money from overseas

Aside from the currency risk, I think one of the big problems for overseas banks with this issue is how to secure assets against the loan. Many overseas banks would not want to be dealing with the hassle of having to take ownership and resell an Australian asset to recover the money if you defaulted on their loan.

God knows, American banks have enough on their plate in their domestic market as it is!

 

No doubt property in the US is much cheaper than it was, but that doesn't necessarily mean that it now positively geared. Even if it was positively geared that shouldn't be the sole reason for investing as many analysts are still suggesting that US home prices may still have further to fall. Also over in the US apparently they aren't suffering from the same shortage of housing that is present here in the Australian market, and as such you may find it difficult to find a tenant.

I don't mean to talk you out of investing in the US or talk you out of doing more research, I just feel obligated to say that just because prices have fallen significantly doesn't mean they are cheap buying and a good investment.

Also you don't need to go overseas to find cheap rates and investments that have dropped significantly in value, you can find those here in Australia. You don't have to look that hard to find positively gear Australian property these days, or alternatively you can just look at the Australian share market the current dividend yield on STW is 10.3% and you can already get a margin loan for 8.99%, and you can expect rates on margin loans will almost certainly drop back to in between 7% - 8% in the next couple of months.

All I'm saying is that any long term investment (especially foreign investments) should be made considering more than just recent events and price trends but should also consider the underlying macroeconomic situation. I know where I stand on the future prospects of the US, and from my perspective the only benefit of borrowing in USD would be to invest that money into another country or investment before the @ss falls out of the USD.

 

How about this old thread now?

No one ever came up with a contact for borrowing from overseas, or any hints and wrinkles about it.

I'd say there must be some great problem with it else everyone would be doing it.

I don't know what the rates are for borrowers but as we know the prime rate for US $ is zero - you can't get lower than that unless they start paying you take it away.

And ours is 3 %. Which is quite a difference. Should cover exchange rates and costs and whatever.

So we'd all want to be borrowing this money just to pay off our mortgages, for instance.

Or borrow it and lend it....

But it must be that it doesn't work like that somehow. It can't be so easy.

So does anyone have anything now? Can anyone explain how it works and why it isn't a goer?

 

Most if not all the banks or lenders will ask for some kind of assets as collaterals to lend you money. Normally they will only accept local assets as it costs too much to have to deal with foreign assets, not to mention the risk involved for the lenders. It is probably easier if you are borrowing to buy local assets, as long as they are happy that you can afford to repay the loan. At least they got the assets with them if you ever default. That's hurdle number one.

Said if you can find a lender that will lend you the money, then you are expose to currency fluctuation. It can work in your favour or against you and you have to decide whether the risk is worth the effort.

You can use a FX forwards contract to hedge the loan so you are not expose to the currency movement. My understanding is that a big part of the formula in calculating the FX rate for a forward contract is essentially the interest rate differential between the two currencies. Said AUD cash rate is at 3% now and USD is at 0%, the FX rate for a FX forward contract settles in one year would be 3% higher or lower than the current FX spot rate (depends on which way you go). So in theory there would be no difference between borrowing oversea and locally if you decide to hedge your currency exposure.

 

http://www.bu.edu/econ/seminars/macroeconomics/paperfall06/csv_currency_060911.pdf

http://www.invested.com.au/7/us-fund-distribution-1065/