A solution to currency exchange exposure
France Home Finance can now offer a product to solve the exchange rate penalty for foreigners buying in Paris with currency exchange exposure.
Let’s take an example of an American buying a property for 1 million € :
You borrow 100% of the purchase price in euros (1 million €.)
The bank requires 25% of the euro loan amount (the equivalent amount in your currency – for example US 368,000$) to be placed in a portfolio as a bond.
The bond acts as a guaranty for the bank, therefore you can’t withdraw the funds while the mortgage is outstanding. You will however keep any gains generated on the investment. If you wish to finance the notaire fees as well (about 7% of the purchase price), the deposit needs to be 33% of the loan amount (for example - US 486,000$.)
 The big news is that this money can be placed in dollars or pounds (or any other currency) therefore NO exchange rate loss for you since you keep your money in its original currency.
The portfolio is required to have a minimum of 70-80% of the placement in money markets (low risk - to be sure money is not lost) and 20-30% in stocks. The expected annual return is 5 to 6%.
This option buys you time to wait for improvement in the exchange rates. Should the exchange rate improve, you can withdraw part or all of the funds in the savings portfolio and pay down the mortgage without pre-payment penalties. This product makes sense for you if your think your original currency will regain its value sometime in the future. If you believe your original currency will continue to devalue over the long term, you are better off changing it to euros to make a direct down payment on the purchase.
There are fees anytime a client invests money in a managed portfolio. This is how the funds management company gets paid (nothing to do with the mortgage bank.)
Approximate associated fees with this product are:
- Entrance Fees ( for the mutual funds) : 2 to 2,5 % of the amount input into the portfolio depending on funds chosen
- Maintenance fee : 0.25 % of the amount in the portfolio per annum
- Management fees : 1 % per annum
The funds management bank is respected institution in business since 1798 and is backed by Credit Agricole, one of France’s largest lenders, therefore solid.
The mortgage payments will of course be paid in euros however they can be covered by future rental payments coming in euros.
he following mortgage types are available:
- Variable rate interest only first period then repayment second period – best option in our opinion for investors – maximum duration of 30 years
- Variable repayment mortgage - maximum duration of 25 years
- Fixed rate for 5 years mortgage – maximum duration of 20 years
- Fixed rate for entire term – maximum duration of 25 years
Click HERE to contact us now for more information on this investor friendly product.
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