Many roads lead into their own four walls – some, however, more like a roller coaster than a road. The innovative power of the financial industry also allows private households unconventional financing concepts, which allow real estate financing at extraordinarily favorable terms far away from home savings and HeW loans if a correspondingly high risk is accepted.
The principle of foreign currency financing is not new
Buyers are being spared in another currency zone, for example in Japan or Switzerland, and are profiting from the significantly lower interest rates compared to the domestic credit market. Borrowing in Yen and Co. is equally associated with opportunities and risks: if the usd rises against the loan, the borrower’s debt is reduced, but if the home currency falls, the financing costs rise. Suppliers of foreign currency exposures argue that rising and falling exchange rates occur with the same probability and that active currency management eliminates fluctuations in value, so that the bottom line is an interest rate advantage. This has a very large dimension: in Swiss francs, for example, up to 75 percent of total interest costs can be saved. This not only reduces the overall financing burden but also the repayment period is much shorter.
In the recent past, another financing method has become established as a niche in the German real estate financing market: If, in addition to the foreign currency loans, still-stock transactions are concluded ie the borrower sells options on the exchange rate development and receives them a premium does not cover most of the eradication unless the markets develop unfavorably. In the best case, only the low interest rates have to be paid the repayment of the loan debt is made solely by the option premiums.
It is necessary to change from one currency
Both the foreign exchange management and the underwriting businesses are taken over by special providers and constantly monitored. Over time, it may be necessary to change from one currency to the other due to the respective market development in technical jargon also referred to as switchen.
The extent to which such concepts are suitable for financing a home is disputed among real estate experts. Borrowers are extremely high-risk: if markets do not perform as expected, serious losses can occur, resulting in the total cost of the project, which far exceeds that of conventional usd financing. For this reason, there are far higher requirements for the equity contributed by the owner for such financing. Loans from the programs of the state-owned HeW are also not available for foreign currency and writer loans.
Ultimately, the personal life situation and the individual risk affinity should be decisive in the decision for or against the innovative real estate financing. In view of the risk and the high degree of specification, the concept seems inappropriate for borrowers with family, who are suffering from a possible failure of speculation – in the end there is nothing else to suffer. Singles with the appropriate financial background and affinity for risk, however, can benefit from the option and, if things go well, benefit.