When it comes to overseas property finance options there are really three main choices :
As with anything, there are pros and cons for each method.
Some of the advantages of buying your Italian property in cash are that it is simple and you can act quickly to complete the purchase if you find yourself competing for the property.
In addition, a cash buyer will normally expect – and usually gets - a reduction in asking price in return for the ease of sale in cash brings about.
Some of the disadvantages of paying in cash for a property is that it does tie up your capital and it is certainly not leveraging the most potential from your capital.
Another consideration to keep in mind if your capital is not in Euros is that you will have to convert it into Euros to make the purchase and you will pay for this in commission charges. However, if you time matters correctly, when your local currency is strong against the Euro, the property you want to buy will become cheaper in your local currency terms.
The advantage of re-mortgaging to release money for your Italian property purchase is that your monthly mortgage payments will be in your local currency, whatever the fluctuations in the exchange rate. However, while this may seem attractive at times, it can also be a drawback as your asset is not protected against currency swings.
One of the big disadvantages, however with a re-mortgage is that you are securing the loan against your main residence. If you have financial difficulties later down the line, you may be putting your primary home at risk.
Re-mortgaging is and is likely to remain the preferred finance option for most borrowers, however, simply because it is probably the easiest one and there is a sense of comfort in dealing with a lender you already know. In addition, if you are buying a new development then a remortgage will probably be your only realistic finance option as you are unlikely to find a lender willing to accept an unbuilt property as security on a new mortgage.
One of the most crucial decisions you have to make when taking out a new mortgage to purchase an Italian property is whether to take the load in Euros or in your local currency.
There are investment advantages in a loan of either currency. In either case you may gain or lose depending on which way the exchange rates between Euro and your local currency move relative to one another.
But, the important thing to consider in terms of protection for each case is the following:
We can summarise the advantages and disadvantages of each case as follows:
||Falling value of Euro may make
your property worth less than your loan
when your local currency is strong against the Euro before buying your
||Debt relative to Value of
property will remain constant
||Rising Euro value could mean much
higher monthly repayments
a Euro income (rent) to balance against your monthly repayments
And do not forget, it is best to seek independent professional advice before you opt either way.
Thank you for visiting our guide… we look forward to welcoming you to Liguria and hope you will love it as much as we do !
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