Insurance Premiums

In the UK over 99% of borrowers raise the mortgage they need to buy their home in sterling and pay the prevailing UK interest rate. But there are alternatives .

Term Life Insurance Policy Despite increases in 2005, the UK's domestic interest rates are low by its' own historical standards. However, they remain significantly higher than in Eurozone, America, Switzerland and indeed, Japan. Therefore, currently you can take out a mortgage in Euros, $ dollars, Swiss Francs or Yen, convert the money you've borrowed into sterling, secure the debt against your house in the UK and end up paying a much lower rate of interest.

Spouse and Children's Insurance Rider A rider that may be added to a permanent life insurance policy to provide term insurance coverage on the insured's spouse and children. Standard Premium Rate The premium rate charged for insurance on a member of the standard risk class. Standard Risk Class A risk class made up of individuals whose anticipated likelihood of loss is not significantly higher or lower than average. Most insureds are included in the standard risk class.

Life Insurance You may think that UK interest rates are low, but if you look at the 3 month money market interest rates you'll see that they remain significantly higher than in other parts of the world:

Forward Rate The rate at which a foreign exchange contract is struck today for settlement at a specified future date which is decided at the time of entering into the contract. The decision to subtract or add points is determined by the differential between the deposit rates for both currencies concerned in the transaction. The base currency with the higher interest rate is said to be at a discount to the lower interest rate quoted currency in the forward market. Therefor the forward points are subtracted from the spot rate. Similarly, the lower interest rate base currency is said to be at a premium, and the forward points are added to the spot rate to obtain the forward rate.

Insurance Life Premium £ sterling 4.64%

Should interest rates rise above the intitial fixed rate, you will be worse off with such a strategy. Is Your Mortgage Causing Stress A lot of South Africans opted for the variable rate option when interest rates were on the way down, to take advantage of lower payments. However, lately, rates have gone up and some are starting to feel the effect on their budgets. If you do not feel comfortable with the fluctuations of your mortgage payments, and would feel much better if your payments remained the same, then you could consider a fixed rate loan.

Health Insurance Policy $ US 4.48%
Eurozone 2.46%
Swiss Franc 1.03%
Yen Japanese 0.12%

Country Risk Factors that affect currency trading unique to the specific country include political, regulatory, legal and holiday risks. Coupon Value The annual rate of interest of a bond. Coupon (1) On bearer stocks, the detachable part of the hide behind nominee status. Certificate exchangeable for dividends. (2) Denotes the rate of interest on a fixed interest security. Cover (1) To take out a forward foreign exchange contract.

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(Source: Financial Times, 3 month Money market Rates, 9/12/05)

The most common ones in South Africa are the fixed, variable rate mortgage as well as, more recently, the interest only mortgage. A fixed rate mortgage means that your repayments remain the same over a certain period. The only increase that you can expect is the result of increases in insurance rates and property taxes. With a variable rate mortgage your monthly repayments will fluctuate. If interest rates are going down your monthly repayments will decrease, but should rates go up your payment will increase accordingly.

Insurance Life Premium Return But you won't be able to take your mortgage out at these 3 month Money market rates. You'll have to pay a premium for borrowing in a foreign currency and the set up costs will be higher. Nevertheless, if interest rates were to remain as they are now, you could save a lot of money on your interest payments.

Whole Life Insurance Policy So why do 99% of UK domestic mortgage holders still choose a domestic UK mortgage? Most borrowers are unaware of foreign currency mortgages but that's not the main issue. The primary answer is that there are extra risks.

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International interest rates are constantly changing and gap between sterling interest rates and the foreign currency rate you've borrowed in, could narrow. This would reduce the interest rate saving and, if that trend continued, could make your interest rate more expensive than a standard £sterling mortgage.

Insurance Life Premium Whole But the biggest risk by far lies' in fluctuations in currency exchange rates. If you borrow in say, Euros, you eventually have to repay the loan in Euros. That would be great if the Euro/Sterling exchange rate was fixed - but they aren't.

Cheap Home Insurance Policy If the £ sterling strengthened against the Euro, when it came to repaying the mortgage you would need to convert less £ sterling into Euros than the £ sterling value of the money you received when you first took out the mortgage. That would be great, a lower interest rate and repay less than you borrowed.

Home Insurance But what happens if the value of sterling falls against the Euro as has happened in recent times?

Care Insurance Long Premium You still have to repay the same number of Euros but you'll have to convert more £ sterling to achieve that. In other words you end up paying back more capital than you borrowed.

Home Owner Insurance Policy So in many ways, a foreign currency mortgage becomes a bet that the £ sterling exchange rate will not fall against the currency you've borrowed in. In other words you've transformed your mortgage and what is probably your biggest liability, into a major currency speculation. And your home's secured against it! You may be lucky and save a lot of money - but it's not for the faint at heart!

Auto Insurance Company Another point you should be aware of is the minimum deposit you'd need for a foreign currency mortgage. Most lenders ask for at least 20%. That's a reflection of the increased risk.

Travel Insurance Policy Incidentally, you now have second option to consider. You can take a mortgage in £ sterling and have your interest rate linked to a foreign currency interest rate. Whilst you avoid the biggest risk - the exchange rate risk, you are still taking gamble that the foreign currency interest rate plus the interest rate premium you pay, will remain lower than the equivalent UK interest rate. These foreign interest rate mortgages typically have a 5 year tie in clause. So, if you want to repay the mortgage early, you'll have a hefty redemption penalty to meet - although the mortgage can usually be moved to another property. For some borrowers this represents an acceptable risk, especially if the mortgage is linked to the Swiss Franc or Yen where interest rates have been astonishingly low and stable over past years. For example, the Swiss interest rate has not moved above 1% in the last 4 years and in the Eurozone, the interest rate has not changed for 5 years.

Insurance Quote Nevertheless, part of the standard wording for a regulated investment warning is appropriate here past performance should not be construed as a guarantee of future performance

Financing Insurance Life Still too risky for most borrowers!

Geico Auto Insurance Policy Michael writes for Brokers Online who offer life insurance cover and most UK financial services including information on best mortgage rates. Additional information - What is a Mortgage in Principle?

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Auto Insurance Premium Michael Challiner has 15 years experience in financial services marketing at senior level, the last 5 of which specialised in online marketing. Prior to that he spent 15 years in advertising with two of the world's top advertising agencies, J Walter Thompson and Saatchi & Saatchi.

Home Insurance Policy Michael is currently the editor of Express Life Insurance and Andromeda Webs Ltd

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