Like Tree3Likes
  • 1 Post By foxwendal

Borrowing in HKD to pay AUD loans

Closed Thread
  1. #1

    Join Date
    Aug 2013
    Location
    The World
    Posts
    1,948

    Borrowing in HKD to pay AUD loans

    Quote Originally Posted by bdw:
    SCB kept raising my credit card limit every year without me asking, to insane levels (over $1m) and I never used any of it (repay my card every month) and thought it was a complete waste of time. Then I discovered these "credit to cash loans" and SCB lent me this credit limit with no questions asked and very low interest rates (APR 1.8%). So I finally found a use for it. Now I left HK and still paying back this loan over the next few years
    What tenor did they give you on the loan?

  2. #2

    Join Date
    Feb 2009
    Posts
    8,279
    Quote Originally Posted by Paxbritannia:
    What tenor did they give you on the loan?
    I got a $599,000 loan for 4 years (48 months), APR 1.89%, repayments $12,958.36 per month, total repayment over 4 years $622,001.38. This was when I was already up to my neck with other tax loans, mortgages, etc and did not think any bank would give me any other kind of loan, then SCB came along and said no worries we will give you another loan already pre-approved out of your existing credit card limit and the funds were deposited into my account a few hours later.

    Now they keep charging the $12k to my credit card every month, should be paid off in another few years. I'm happy to take out as many of these kinds of loans as the banks will give me, since I simply move the money overseas to Australia, where Aussie dollar is low now so favourable fx rates, then simply dump the cash on my Aussie mortgage and saves me more than the 1.89% it costs me in Hong Kong.

  3. #3

    Join Date
    Feb 2009
    Posts
    8,279
    Original Post Deleted
    err, well if you look at a 5 year graph, in Jan 2016 the USD/AUD was 0.68 and today is 0.67 basically the same. So I understand your argument that you can lose a lot in fx, but you picked kind of an extreme point to make an exagerated statement.

    I did start transferring a lot of HKD to AUD when it was below 0.72, yeah lost some fx on those transfers at today's rates, but actually I did a massive HK$4m transfer to AUD in August last year when I refinanced my HK property and that was 0.67 which is what it is today so more or less for me I havent gained or lost much on the fx side at this point. But I do think the AUD is cheap right now.

    I also feel quite fortunate when I left HK a few months ago, my company converted my HKD salary into an AUD salary at the exchange rate back in October last year which also was around 0.67 and I feel I got quite a good deal out of it, secured a full time employment in Aus and locked in a salary that is as you say 15% higher than it could have been if I had negotiated at a less favourable time.

  4. #4

    Join Date
    Feb 2009
    Posts
    8,279

    No worries guys, I do get your point. I guess my gamble is that the AUD at around the high 60's or low 70's is a low point, and I have expectations of it rising again at some point. Only time will tell if this prediction is accurate


  5. #5

    Join Date
    Dec 2009
    Posts
    311

    the outcome of this trade will definitely have multiple times more to do with fx movement than any (relatively inconsequential) interest rate differential. i know bdw is fully aware of this gamble but I think all the pushback on it is well warranted lest any less financially savvy readers get the idea this is a sensible thing to do. it’s taking a punt on AUD no more no less. it may certainly be profitable but it’ll have little to do with interest rates.


  6. #6

    Join Date
    Feb 2019
    Posts
    3,240

    He might also have covered some of the FX loss with capital appreciation on the properties he's using the leverage on? I think Auz was boomtown until recently?


  7. #7

    Join Date
    Nov 2014
    Posts
    458
    Original Post Deleted
    The change in risk factor when the person's salary switches is the exchange rate from which their salary is pegged.

    So let's say loan is in HKD. Salary based in HKD and converted to AUD at spot rate at whatever interval. Living expenses are in AUD. This means he faces exchange rate risk for his living expenses.

    Referring specifically to AUD vs HKD - there's additional risk if the virus affects China's economy severely as Australia's economy is heavily tied to the Chinese economy. I'm not an f/x expert but I would guess that less demand for Australia's natural resources from China (due to less business activity) = less demand for Australian dollars = less buying pressure = further weakening. But there are always counter balancing forces so I wouldn't put money on it.
    Last edited by Viktri; 15-02-2020 at 03:21 AM.

  8. #8

    Join Date
    Dec 2009
    Posts
    311
    Original Post Deleted
    speaking generally too, its much riskier imo whenever income currency doesn’t match your liability’s currency. you’re exposed to the appreciation of the debt currency, needing more of your income to pay it off.

    Asian Financial Crisis back in ‘97 was pretty much this on a large scale. Lending rates in Thailand were in double digits but companies could borrow in USD around 5%, so many companies naturally chose the cheaper debt, with confidence that THB would maintain its USD peg. The peg eventually broke, USD spiked, companies defaulted and chaos ensued (cliff notes version)

    Where the move makes sense then to me is if you were already paying off an AUD mortgage strictly with HKD income, then converting that debt to HKD (if it’s feasible) is actually a prudent move imo to hedge the fx. I would probably do the same too, but then even if the HKD loan came with a slightly higher interest rate, which is quite different to the strategy being proposed

    btw, no issues with bdw choosing to do this and certainly he may well come out ahead for it. just hope
    ppl know what the real driver is behind it to make an informed choice
    Last edited by foxwendal; 15-02-2020 at 09:31 AM.

  9. #9

    Join Date
    Dec 2009
    Posts
    311

    sorry i dont mean to rub it in but times like this really shows how this is really an fx bet and the much smaller interest rate differentials on currency should not be a motivation to do this. aud down 17% just this month vs hkd

    jrkob likes this.