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Borrowing in HKD to pay AUD loans

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  1. #1

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    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
    bdw
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    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

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    Original Post Deleted
    Ouch. That's will have blown up any interest rate arbitrage strategies.

  4. #4
    bdw
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    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.

  5. #5

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    Quote Originally Posted by bdw:
    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.
    To be fair, he could have picked any point at all in the last ten years. At today's levels, the AUD is weaker than it has been and anyone following your strategy is likely to have lost significant sums repaying a HKD debt using AUD source.

    Borrowing in 2010 - AUD a lot lower now
    Borrowing in 2011 - AUD a lot lower now
    Borrowing in 2012 - AUD a lot lower now
    Borrowing in 2013 - AUD a lot lower now
    Borrowing in 2014 - AUD a lot lower now
    Borrowing in 2015 - AUD a little lower now
    Borrowing in 2016 - AUD a bit lower now
    Borrowing in 2017 - AUD a lot lower now
    Borrowing in 2018 - AUD a bit lower now
    Borrowing in 2019 - AUD a bit lower now

    If we are cherry picking, your example of 2015 is the only year anyone implementing this strategy wouldn't be sitting on decent forex losses now. The interest rate differentials cushion some of the blow, but not all of it. Clearly this is far from a riskless strategy..


  6. #6
    bdw
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    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


  7. #7

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    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.


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    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?


  9. #9

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    Original Post Deleted

    Disclaimer: I know less than nothing on F/X

    Question 1: Is the risk higher or lower when the person is borrowing in HKD then paying off in AUD AND AND the person's salary / income continues to be in HKD?

    So has BDW's risk gone up as now his salary is in AUD?

    Question 2: Is the risk of this currency pair HKD / AUD less than another currency pair because the HKD is pegged to the US dollar. e.g. does a peg to USD lessen volatility versus a pair that has no peg like say EURO to something or JPY to something

  10. #10

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    I used BDW as an example for the question. Meaning if a person borrows in HKD to pay off AUD and what then is the change in risk factor if that person's salary switches from HKD to AUD

    you are absolutely correct that I would not want to ask BDW to put out his specific circumstance


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