Italian Mortgage Information

(Mutuo Ipotecario)

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.



Overseas Property Finance: Buying With Cash Savings

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.


Overseas Property Finance: Re-mortgage to Release Equity

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.


Overseas Property Finance: Take Out 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:

  • Taking out a loan in local currency will protect your repayments from currency fluctuations – assuming you are using income in local currency to pay for the repayments. But the big disadvantage with this option is that your asset is not protected against currency swings, if you decide to sell your property and convert back into local currency.

  • Taking out a loan in Euros on the other hand will protect the value of your property relative to your monthly repayments which minimizes the risk of capital depreciation on your Italian property. This is especially useful if you have no intention in ever converting the money back to local currency upon a sale. The big disadvantage with this option is that you are open to currency fluctuations if you are using income in local currency to cover the repayments. This means that a rise in the value of the Euro against your local currency will make repayments more expensive as you get fewer Euros when you swap your local currency for Euros each month. But at least your property will be worth the same percentage more in terms of local currency.

We can summarise the advantages and disadvantages of each case as follows:


Mortgage Type
Advantages
Disadvantages
Solution
In Local Currency
Constant Monthly Remayments
Falling value of Euro may make your property worth less than your loan
Lock in when your local currency is strong against the Euro before buying your property
In Euro
Debt relative to Value of property will remain constant
Rising Euro value could mean much higher monthly repayments
Generate 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.




Overseas Property Finance Options


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