U.S. Mortgage Exchange Risk

If you're a Canadian buying a 2nd home in the U.S. there's a chance you'll need a U.S. mortgage.  If so, you'll be paying that mortgage in American dollars. 

That's fine...unless the Canadian dollar takes a nose dive, like its been doing lately.

Last week the Canadian dollar plunged 4% versus the U.S. dollar.  It was the biggest weekly drop since 1971 according to foreign exchange provider, HiFX.  That means a $250,000 house in the U.S. just got $10,000 more expensive for Canadians.

If you have a U.S. mortgage, exchange rates also come into play when you make your monthly payments.  One way to avoid this risk is to refinance your Canadian home and use that money for your purchase.  That way you can buy in the States and have your debt in Canadian dollars.

Another way is to lock in your exchange rate in advance.  HiFX, for example, lets you lock in mortgage payment exchange rates for up to two years. 

If it's a big one-time amount you're transferring to U.S. dollars (like a down payment), then a foreign exchange specialist might save you some money.  HiFX and Custom House are two such providers. 

Banks generally charge much higher spreads.  Sometimes the difference is more than 1/2 to 3/4%, which is $500 to $750 on $100,000.

(Chart from Barchart.com)

Comments

[Vancouver real estate agent]

It is definitely something bad, but anyone who wants to buy or bought a second house in the U.S. should have known the risks. That`s what realtors and brokers are for. To tell them. The plunge in the currency exchange is cost by the RE market mainly so it`s all intertwined. Since I have lots of experience as a Vancouver realtor I do have some tips. Generally the whole thing about this is to try to outwit the system. For example have an account in U.S. dollars already and then the exchange rates or at least commissions won`t be so harsh. But whatever you do, first thing is to consult an expert.