A few years ago the multi-currency mortgage became a flagship product for banks, which offered it as an alternative so that their clients could access a mortgage loan without fear of the constant increases in Euribor.
The supposed advantage of these mortgages is that those who had one of them benefited from lower benchmarks when paying in currencies cheaper than the dollars. But with the fall of the dollarspean rate and the rise in the price of other currencies, many mortgaged people found that after spending some time paying their home loan they now had a debt that exceeded the amount initially requested.
It is clear that the multi-currency mortgage is a product with risks that you have to know very well, and that is just what we are going to do through this article.
What are multi-currency mortgages?
They are mortgage loans granted in a currency other than the dollars and with a benchmark also outside the dollarspean Union.
If that currency has a value lower than the dollars, the operation is positive, since you will pay less for the credit. The problem comes if the currency in which you have requested the loan begins to rise and gains more strength than the dollars, in which case you will end up paying much more interest.
Risks associated with this product
- Currencies are publicly traded every day, so a loan of this type can suffer large fluctuations both downward and upward.
- The commissions associated with this product are higher.
- A subrogation of the mortgage is not possible if you decide to sell the house.
- You cannot always make the currency exchange to which the loan is referenced whenever you want, many banks limit the changes to once a month and prior payment of a commission.
Why did they cause so many problems?
As we have seen before, there came a time when other currencies had a market value greater than the dollars, which made the interests of multi-currency loans grow a lot.
In some cases, the growth was such that some people ended up owing the bank more than the amount they had requested at first, and that despite having been paying their mortgage for years.
A finance expert would know that this could happen. But, as has been the case in recent decades, banks did not adequately inform their clients about the risks posed by the product they were hiring.
The vast majority of people who contracted a multi-currency mortgage did not have enough knowledge to know what they were getting into and neither did anyone bother to explain it to them.
The obligation of information by the banking entity
This product we are analyzing has ruined many families, something that could have been avoided if the banks had offered adequate information on how currency fluctuation affects these loans and the different scenarios that could occur.
When is a foreign currency loan abusive?
A foreign currency loan is perfectly legal, but it is essential that the contractor has sufficient knowledge to know exactly what it is and the risks it assumes.
On this issue, the Supreme Court has determined that the multi-currency mortgage is void if at the time of contracting the client was not provided with sufficient information to understand how these types of loans work, expressly warning that the debt could increase if the value increased of the reference currency.
What can I do if I have a multi-currency mortgage?
You have three options:
- Negotiate with your bank a change of mortgage in foreign currency to a mortgage loan in dollars.
- Cancel the mortgage you have and ask for a new one.
- Legally claim the nullity of your mortgage.
Although the first two options may be faster, they also involve more associated costs and you will not recover what you have overpaid. Hence, the most advisable thing is to legally claim the nullity.
Does the new Mortgage Law protect us against this product?
The new legislation establishes measures that, unfortunately, are not retroactive and only apply to multi-currency loans signed as of June 16, 2019.
What the law says is that the bank must report periodically on the increases in debt caused by the increase in the value of the foreign currency. In addition, the pre-contractual information must state what the mortgage would be more expensive if the change between the currency and the dollars rose by 20%.
And to grant even more protection, the holder of a multi-currency mortgage has the right to convert it to the dollars when he deems it convenient.
If you are one of those affected by this product
The best thing that we can advise you, in this case, is that you go to an expert lawyer in the matter to be in charge of examining your situation and help you to propose alternatives, assessing whether it is convenient to negotiate with the bank or go directly to the courts.