I'm not sure if this is the correct Forum so I apologise in advance. However I read this Forum most days and I always appreciate the advice.
Someone has asked my opinion on getting their home loan refinanced with the Bank of Japan as apparently, they have 0% interest rates and "that seems too good to miss".
Their situation:
PPR ($149,000 left) with Westpac, 7.16% Rocket with offset ($15k). They've also been with Westpac for only 2 years.
I wasn't sure what to say, I told her she'd have to consider the break costs (although she could arguably offset that against 0% int rates) and that it would an interest rate gamble that could in the end increase her debt by 25% because the the interst rate increases by a few points.
Is this something that is done? I've never heard of it before.
Can I have your thoughts please?
Thanks in advance.
As far as I can gather, the Bank of Japan is located in Japan and not Australia, and therefore the loan would be issued in the Japanese Yen currency. Let's pretend the interest rate is indeed 0%. Sooner or later you would still have to pay out the principal amount though, and this would have to be paid in Yen, regardless of the exchange rate. So let's say you are borrowing to buy a house worth $500k and thus the loan is for AUD$500k. Today's exchange rate is 1AUD=JPY82.1918 and therefore the loan would be JPY41095900 (ie 500*82.1918). Now lets say that when the time comes to pay out the loan, the exchange rate changes to 1AUD=JPY70.2563. Suddenly you owe AUD584942.6 (which is JPY41095900/70.2563). So instead of owing AUD$500,000, you now owe AUD$584,942.60. This is just talking about the principal amount. I doubt very much you can lock in the interest rate of 0% forever, so your interest payments will also be subject to fluctuating currency exchange rates. It could work in your favour but it could also work against you. Don't think a currency can't change that much… as an example: just over 2 years ago, on October 12th 2008, the AUD/GBP exchange rate was 1GBP=2.61AUD. And now it is 1GBP=1.6AUD – a drop of almost 40%.
Jacqui Middleton | Middleton Buyers Advocates
http://www.middletonbuyersadvocates.com.au
Email Me | Phone MeVIC Buyers' Agents for investors, home buyers & SMSFs.
A couple of other thoughts:
A Japanese bank may not accept an Australian property as security for an investment loan.
It might prove difficult to later on leverage the equity growth in the Australian property held under mortgage with the Bank of Japan. So this might limit how quickly your portfolio can expand.
Jacqui Middleton | Middleton Buyers Advocates
http://www.middletonbuyersadvocates.com.au
Email Me | Phone MeVIC Buyers' Agents for investors, home buyers & SMSFs.
Thanks for your advice. Makes perfect sense.
NB
I will also say this: tread VERY carefully. This could start out as an endeavour to save a little bit of money and end up costing an awful lot. A bit like gambling perhaps. If you can't afford to lose, you don't play the game.
Jacqui Middleton | Middleton Buyers Advocates
http://www.middletonbuyersadvocates.com.au
Email Me | Phone MeVIC Buyers' Agents for investors, home buyers & SMSFs.
Good luck
Jacqui Middleton | Middleton Buyers Advocates
http://www.middletonbuyersadvocates.com.au
Email Me | Phone MeVIC Buyers' Agents for investors, home buyers & SMSFs.
I advised them against it for that very reason. I just hadn't come across it before and wondered if I was missing something.
thanks again.
I would play it safe and stick to Aussie lenders, sure our interest rates go up and down but the strength of the Aussie economy I trust.
Cool. Indeed it could go in your favour or against you, but why risk losing the farm due to being greedy to save a few dollars. Slow and steady wins the race.
Jacqui Middleton | Middleton Buyers Advocates
http://www.middletonbuyersadvocates.com.au
Email Me | Phone MeVIC Buyers' Agents for investors, home buyers & SMSFs.
When we lived in Japan in 2004 we tried to get a 1% interest loan through ANZ in Tokyo. Yes they were available and we heard stories of foreigners getting loans to buy houses overseas. We went through all the neccesary paperwork, but sadly we were rejected and were never told why, but it was worth a try! So now I pay alot more than 1% to ANZ in Australia. Boo Hoo!
Yep. If there were a super easy way of getting zero percent homeloans, we'd all be doing it!
Jacqui Middleton | Middleton Buyers Advocates
http://www.middletonbuyersadvocates.com.au
Email Me | Phone MeVIC Buyers' Agents for investors, home buyers & SMSFs.
The Bank of Japan is, I believe, the japanese version of the reserve bank. They don't actually lend individuals money. So although the official rate may be 0%, or maybe 0.25 – 0.5% the rate for borrowers of housing loans is around 2-3% I think. there are some vendor finance type deals with low or no interest for the first few years though.
Secondly, it would be almost impossible for a non resident to borrow in Japan for Japanese property, let alone foreign property. It you were working in Japan and earning Yen you could borrow from an Australian bank based there, with low rates, say 2 to 3%, but the LVR would be 70% or less and the loan would be called in if you ever moved away from Japan and/or stopped earning income in Yen.
japanese lending policies are extremely strict because of the bursting of the bubble many years ago. So it is not easy to get a loan there.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
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