# Italian Mortgage in Euros or Dollars?



## Cannoligirl1 (Oct 24, 2014)

We have been pre-approved for an Italian mortgage, with a choice of taking it in Euros or Dollars. The exchange rate is currently pretty good, but the economy is very volatile and it's hard to predict what the future holds here or there. Italy could leave the EU and/or go off the Euro and we're unsure how this would affect us. This is an election year in the U.S. so that could result in significant changes here as well. We have one shot at this; whatever we choose is what we will be stuck with for the next 20 years. We would really like to hear the advice of others. Please and thank you!


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## NickZ (Jun 26, 2009)

The simple answer is to match the mortgage to your income. This way you avoid currency risk.

Anything else either means gambling on the currency move or spending money to hedge the currency.


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## Cannoligirl1 (Oct 24, 2014)

Thank you for your quick response. Since our income when we move to Italy in 4 years will be retirement coming from the U.S. in dollars, I guess that means you think we should take our Italian mortgage in dollars. I appreciate your advice.


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## accbgb (Sep 23, 2009)

Cannoligirl1 said:


> Thank you for your quick response. Since our income when we move to Italy in 4 years will be retirement coming from the U.S. in dollars, I guess that means you think we should take our Italian mortgage in dollars. I appreciate your advice.


There is no good answer here.

The dollar today is quite strong against the euro; not so very long ago it cost around $1.50 to purchase €1. Although possibly unlikely in the near term, there is no reason that might not happen again. On the other hand, it seems very unlikely that the euro will fall substantially lower than it already has. Having said all that, a mortgage in euros might be particularly risky.

But, I am curious: if you take the mortgage in dollars, are you sure it does not come with a stipulation that the actual payments will be adjusted based on the current exchange rate? I'm not sure I understand why the bank would be willing to take on the risk of an exchange rate which turns against them...


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## NickZ (Jun 26, 2009)

accbgb said:


> I'm not sure I understand why the bank would be willing to take on the risk of an exchange rate which turns against them...


The bank doesn't have to take any/much risk. 

They lend you € to pay the mortgage.
They borrow an equal amount in $
You pay them in $ and they repay their debt in $

Or they could do other things to hedge the risk. For the bank it's relatively simple


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## NickZ (Jun 26, 2009)

Cannoligirl1 said:


> Thank you for your quick response. Since our income when we move to Italy in 4 years will be retirement coming from the U.S. in dollars, I guess that means you think we should take our Italian mortgage in dollars. I appreciate your advice.


Only you know how much risk you can tolerate.

You might want to look at what's happening in places like Poland. People there took loans in Swiss Francs or Euros and with the changing exchange rate are now in trouble. Similar things have happened in other countries.

OTOH there are people who could accept the risk of the currency going against them.


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## Cannoligirl1 (Oct 24, 2014)

The bank providing the Italian mortgage is a private Swiss bank in northern Italy. They deal in Swiss Franks, Euros, and Dollars so it doesn't matter to them. We can transfers our American dollars directly from our U.S. bank to them to make mortgage payments, no exchange necessary if we take it in dollars. It sounds like dollars are the way to go, but what if Italy goes off the Euro and back to the devalued Lira? Wouldn't we end up paying more then?


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## NickZ (Jun 26, 2009)

You'd still be paying in US$.

Like I said you need to decide for yourself how much risk you're willing to take.


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## BBCWatcher (Dec 28, 2012)

It also depends in part on how much you would be paying for this service in terms of exchange rate "spread."

Let's suppose for example that you're financing 100,000 euro at 4% interest. At the current hypothetical mid-point exchange rate (as I write this) that's equivalent to about 111,000 U.S. dollars. So if the bank is saying we'll finance 100,000 euro at 4%, but you also have the choice to pay that loan off in U.S. dollars per month (that don't fluctuate) with a principle of US$111,000, also at 4%, then that seems like a pretty good deal to me. They're doing a zero cost currency conversion for you and hedging the currency risk for you. (And also keeping the upside if there is any.) But that's a reasonable deal to take if your future income is going to be predominantly or exclusively in a stable stream of U.S. dollars.

....On the other hand, if the bank is saying you can finance 100,000 euro at 4% and pay in fixed euro, or we'll set the principle to US$130,000 and base fixed U.S. dollar payments on 6% interest -- well, you're paying an awful lot of expense for that "service." And I don't think I would take that deal. It'd be cheaper for me to buy my own currency hedge using foreign currency options exchanges. (Which requires some knowledge, of course, but this is where you have to do your homework.)

So what are the deals they're offering? It's very hard to offer a recommendation without knowing what's on the table.

CAUTION: Do NOT buy any property -- at least any you plan to live in, especially in a faraway place -- until you've lived in the area and understand the area. Spend some time in the area and renting. There's huge risk in jumping into a mortgage on a property if you've never lived in the area.


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## Cannoligirl1 (Oct 24, 2014)

Thank you to everyone who commented. The bank providing the mortgage is Banca Popolare di Sondrio Succursale. The interest rate is a negative number + Libor. After reading all the comments, and since our income will be retirement checks coming from the U.S., I think we will take the mortgage in USD. We have visited Sicily several times. I have dual citizenship and many very friendly cousins who still live there and are willing to help us. Thank you!


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## The-cat (Feb 27, 2016)

Cannoligirl1 said:


> Thank you to everyone who commented. The bank providing the mortgage is Banca Popolare di Sondrio Succursale. The interest rate is a negative number + Libor. After reading all the comments, and since our income will be retirement checks coming from the U.S., I think we will take the mortgage in USD. We have visited Sicily several times. I have dual citizenship and many very friendly cousins who still live there and are willing to help us. Thank you!


https://www.italymagazine.com/comment/259016#comment-259016


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## BBCWatcher (Dec 28, 2012)

One good "rule of thumb" is that if you don't understand the financial deal quite well, you're probably not getting a good deal. If the deal seems too complicated to understand, I'd walk away from it.

I asked what I thought were some basic questions to try to understand what deal you're being offered. You don't have to answer those questions here if you don't want to. But if you can't answer at least those questions, then I don't think you know what you're signing up for. One thing that concerns me is you have some sort of weird adjustable rate mortgage, weird at least in the sense that it has no direct relationship to U.S. dollar interest rates and inflation rates, never mind the fact that several banks were just found guilty manipulating the Libor rate. That'd give me some anxiety, and I'd want to make sure I understand what's going on.

Another factor I'd like to know about is whether there's any penalty to accelerate or prepay the mortgage. Under Italian law I don't think that's allowed, but if the mortgage is in U.S. dollars, or under Swiss law, or both, who knows.

Lots of questions.


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## The-cat (Feb 27, 2016)

BBCWatcher said:


> One good "rule of thumb" is that if you don't understand the financial deal quite well, you're probably not getting a good deal. If the deal seems too complicated to understand, I'd walk away from it.
> 
> I asked what I thought were some basic questions to try to understand what deal you're being offered. You don't have to answer those questions here if you don't want to. But if you can't answer at least those questions, then I don't think you know what you're signing up for. One thing that concerns me is you have some sort of weird adjustable rate mortgage, weird at least in the sense that it has no direct relationship to U.S. dollar interest rates and inflation rates, never mind the fact that several banks were just found guilty manipulating the Libor rate. That'd give me some anxiety, and I'd want to make sure I understand what's going on.
> 
> ...


i am sorry , for the link , at message posted on another forum - YET - this message enclose many links , and the writer coordinates - Links are not allowed here , for me , and same things for writer coordinates - 

on the other hand, it would be wrong to write data and cite legal norms in force in Italy, without citing the source and sign what has been written .


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## NickZ (Jun 26, 2009)

BBCWatcher said:


> One thing that concerns me is you have some sort of weird adjustable rate mortgage, weird at least in the sense that it has no direct relationship to U.S. dollar interest rates and inflation rates, never mind the fact that several banks were just found guilty manipulating the Libor rate. That'd give me some anxiety, and I'd want to make sure I understand what's going on.
> .


In Europe Libor + or Euribor + are normal for variable rate mortages. There isn't anything unusual there.

What I'd be asking is why even consider a variable rate today? Over the next twenty years the odds are most of those years will be at a higher interest rate then the current one.


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## accbgb (Sep 23, 2009)

I will just add this note:

In the US, it is not unusual for people to buy a home with no particular intent to stay in it for a long period of time. Stay a year or three and then put it on the market and move up or move on. This has been the way for decades, though recently things have slowed a bit (!) due to the market crash which began in late 2008.

In Italy, however, unless the property you are buying is in a very, very, hot market (and thus very, very, expensive), it is very possible that the property you purchase today may take years to resell and, quite possibly, may never sell at anything above giveaway pricing, let alone a profit.

Far better to rent until you are absolutely certain that you intend to remain in a particular home for the remainder of your life.


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## The-cat (Feb 27, 2016)

NickZ said:


> In Europe Libor + or Euribor + are normal for variable rate mortages. There isn't anything unusual there.
> 
> What I'd be asking is why even consider a variable rate today? Over the next twenty years the odds are most of those years will be at a higher interest rate then the current one.


In Italy the use of Libor, it is highly not recommended - especially because it lends itself to easy manipulation -

In fact the bank Barclays, just with mortgage that use this type of rate - suffered a class action , which cost they over a million euro 

I completely agree that today the rate to be used is the fixed - further declines in the euribor floating rate, would immediately be offset by a rise in the banking spread - 

Banks may NOT work at a loss, it establishes the European standard Baseea III - 

But what is the foreign bank clients, they usually do not read carefully, are the information Sheets, where lie, countless additional bank charges and the application of spread - this information is at the base of a CONVENIENT loan agreement.


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## 03agency467 (Mar 27, 2016)

Cannoligirl1 said:


> Thank you to everyone who commented. The bank providing the mortgage is Banca Popolare di Sondrio Succursale. The interest rate is a negative number + Libor. After reading all the comments, and since our income will be retirement checks coming from the U.S., I think we will take the mortgage in USD. We have visited Sicily several times. I have dual citizenship and many very friendly cousins who still live there and are willing to help us. Thank you!


Did you find help yet??


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