Understanding Multi-Currency Mortgages: Risks, Benefits, and Claim Process

A multi-currency mortgage is a type of mortgage loan in which principal and interest are calculated in foreign currency instead of in euros.

In these mortgages, the bank lends you the money in a currency other than the euro, and you return the money in that same currency. Normally, the currencies most used in this type of mortgage are the japanese yen or the Swiss franc.

Next, we explain how it works, what risks it has and what you should do in case of problems.

How does a multi-currency mortgage work?

The main characteristic of these mortgages is that the borrower bears the risk from currency exchange fluctuations. The installments will fluctuate not only depending on the interest rate, but also on the exchange rate between the currency used and the euro.

The installments with which you repay your loan to the bank are calculated in the foreign currency in which the mortgage is configured, but you pay them in euros (the bank then converts your euros into that currency). So, if the value of the currency is less than the euro, you will need less euros to pay the fee.

This is the main attraction of multi-currency mortgages: the possibility that your monthly payments turn out to be lower than those of a traditional mortgage denominated in euros.

Is the multi-currency mortgage profitable?

The greatest risk of these mortgages lies in the possibility of the exact opposite happening: if the euro weakens With respect to the currency in which the multi-currency mortgage is expressed, the monthly installments that you must repay will grow.

This is what happened from 2008: until then, the yen and the Swiss franc traded well below the euro, but from that year they began to strengthen. Those who had taken out a multi-currency mortgage began to see how their installments grew non-stop.

But not only the monthly installments increase: the capital to be returned also increases, since it is expressed in a foreign currency that, in this situation, would be worth more and more (it would be more expensive). There may come a time when the value of the mortgaged home is no longer enough to pay off the debt.

What are the associated costs?

In addition to the possible increase in monthly payments if the currency strengthens against the euro, these mortgages usually include some expenses and commissions that are not present in regular mortgages, and that depending on the cases they can be very burdensome.

An example is the currency exchange commission, which the bank charges you when it transfers your euros to the foreign currency to pay the installments. another, the compensation clauseby which the bank forces you to pay money if the outstanding capital exceeds the loan.

What is the target audience of the so-called multi-currency mortgages?

From everything we have explained, it is clear that this type of mortgage carries greater risk and complexity.

Currency market fluctuations can be volatile and difficult to predict, which can result in significant changes in the amount to be paid that may even affect the ability to pay the monthly payments.

If you are wondering who the multi-currency mortgage is for, the answer is that it should always be someone with a good understanding of how financial markets work.

Those who consider contracting a multi-currency mortgage must fully understand the risks associated with this financial product. Likewise, it is advisable to seek advice from financial experts and compare different options before opting for a multi-currency mortgage.

How to claim for a multi-currency mortgage?

You can legally claim for a multi-currency mortgage if the financial institution did not explain to you that your installments and your outstanding capital could rise if the foreign currency gained value against the euro.

If a judge or the bank itself accepts your claim, your mortgage must be converted to euros and it would refer to the Euribor. In addition, the fees you have already paid are recalculated in euros and the bank has to return everything you have paid in excess for any concept: interest, capital and commissions for currency exchange.

What steps do I follow to claim?

The most common first step is usually to file the claim with the Customer Service of your own bank. It is an ineffective method because financial institutions usually delay the response so as not to have to pay or do it as late as possible.

The other option, or the next step if your bank doesn’t respond, is file a claim in the court of first instance of your municipality Going to trial is always a long procedure, but it has the advantage that it will be a judge who issues the sentence.

You can process your complaint through a lawyer or resort to a consumer association.

How is a multi-currency mortgage settled?

If you want to try other options before claiming, you can try to negotiate with your bank one of these two alternatives:

• Pass it to euros. This supposes a novation of the contract. Banks are not required to accept it, but as many banks are losing lawsuits over multi-currency mortgages, this may make them more willing to negotiate new terms.
• Request a new mortgage loan that allows us to cancel our multi-currency mortgage. By doing this, you can take advantage of current mortgage terms.

How much do I pay if I fully repay my multi-currency mortgage?

In any of the two previous options, there are a series of novation expenses, or the constitution of a new mortgage, which you will have to face.

In the case of the novationthere is the commission for novation (up to 1% of the pending capital), notary fees (up to 0.5%), agency (about 250 euros on average) and Land Registry (another 250 euros).

If you sign one new mortgage, you will have to face the costs of setting it up, as well as the commission for early cancellation, if it exists in your multi-currency contract. For many people who signed multi-currency mortgages in their day, this option is not viable since they owe more money to the bank than they requested, and when canceling it they would have to assume this extra cost.

Conclusion

In short, the multicurrency mortgages may seem attractive to those familiar with financial markets, thanks to the possibility of lower monthly payments. However, it is crucial to remember that these loans carry with them a high degree of risk due to unpredictable fluctuations in currency exchange rates.

If you are already managing a multi-currency mortgage and are facing difficulties, remember that there are resources and strategies available. since do legal claims until renegotiating with your bankyou have several options to approach the challenge.

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