Author Topic: How can I access Low US interest rates for "international investments"??  (Read 2713 times)

pka222

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Here is the situation. 

There are some real estate deals in my neighborhood that would work out very well if I could access US-like interest rates.  The challenge is that in the developing country in which I reside interest rates for secured home loans start at 9.9% - no joke- three times that of the US - see here for example http://data.worldbank.org/indicator/FR.INR.LEND

My question is -as an American- how can I get a substantial low interest loan - for use out side of the US? Is it possible? Could I use an US based asset as collateral?  I can pull 10 -15000 off my credit cards for 5% but I'm looking for 10 times that amount. 

I know this is a long shot but the difference for 20yr, 200K loan at 10% vs 4% is 150K - so it is totally worth asking :)

Any insight would be most appreciated.

Cheers

arebelspy

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Could I use an US based asset as collateral?  I can pull 10 -15000 off my credit cards for 5% but I'm looking for 10 times that amount. 

Sure you can.  If you're looking to get 100-150k and have a US based asset worth that much, I'm assuming it's real estate in the US.  So get a long term low mortgage on that, and take the cash and put it into buying your overseas place in cash.

It works out the same - instead of owning your US place in cash and overseas place with a mortgage of 100-150k at 4%, you own the US place with a mortgage of 100-150k at 4% and the overseas place in cash.

You're adding some more risk because if your overseas place is forcibly taken from you, you still have the lien here, but if you feel secure about that, go for it.

If you have some other - non-real estate - asset here worth 150k (collectible car or something?), it'll be a lot harder to use as collateral, you'll have to look into the specifics of that and/or provide us more details.

But the short answer is yes.
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pka222

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@arebelspy- Ok- so that was my thinking as well, take mortgage out on a US house and use the cash in my current tropical location.  The challenge is- I'd like to use leverage on this deal- maybe put down 25-30% cash and use the bank's money for the rest, however all my US assets are in VSTAX and not housing and I'd like to leave them there.

I'm just struggling with the choice between going all cash with no leverage or  9% local rates.
Thanks

Nords

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@arebelspy- Ok- so that was my thinking as well, take mortgage out on a US house and use the cash in my current tropical location.  The challenge is- I'd like to use leverage on this deal- maybe put down 25-30% cash and use the bank's money for the rest, however all my US assets are in VSTAX and not housing and I'd like to leave them there.
I'm just struggling with the choice between going all cash with no leverage or  9% local rates.
Thanks
If you're trying to use your mutual funds as collateral then you'd want to have an account with a brokerage that offers attractive margin rates.  However you're borrowing at a variable rate (instead of at 9%) and in a recession you could hypothetically be subject to margin calls.

former player

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There will be a good reason why interest rates start at 9.9% in your country's currency, and that relates to inflation (ie a devaluing currency, which means a devaluing real estate investment, relatively speaking) or to other economic and security risks.

You definitely need to take into account your exposure to changes in the exchange rate between the US dollar and the currency of the country you are buying in.  If your earnings are in the non-dollar currency (your rental income presumably will be), and that currency is devalued against the dollar, you could be in big trouble.  Not saying don't do it, just be aware that for many people this sort of gamble hasn't paid off.  For example, in recent years there has been a big problem in Cyprus of people getting low interest Swiss Franc mortgages which led to them losing their shirts when the value of the Swiss Franc soared relative to the Euro.  Depending on the laws applicable to your borrowings, you lose not just what you've put into the house but put all your other assets at risk as well.

pka222

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 Former player -Great point - I've thought of this as well. I think the risk to the lenders is the reason the rates are so high- that is the "culture" of loans and loan defaults makes 9-10% reasonable.  I the local currency is remarkably stable but I think I'll talk to the central bank to find out why that is.
Cheers