What would happen Mortgages and Personal loans after a Euro Exit ?

I am hoping to get a mortgage early this year, as i dont see the good sites in good locations dropping more than another 10%(could be wrong). However its more likely now that GReece will voluntarily leave the Euro in the first half of this year with Portugal likely to follow.
Not that i expect Ireland to leave but if we did, our new currency would likely devalue.
What would happen that mortgage debt would it still be in euros ?

Deleted User

Deleted User wrote: »

I am hoping to get a mortgage early this year, as i dont see the good sites in good locations dropping more than another 10%(could be wrong). However its more likely now that GReece will voluntarily leave the Euro in the first half of this year with Portugal likely to follow.
Not that i expect Ireland to leave but if we did, our new currency would likely devalue.
What would happen that mortgage debt would it still be in euros ?

I don't know where you're getting the idea that both Greece and Portugal will voluntarily leave the Euro, because it's plain wrong.

To answer your question though, your mortgage will remain in the currency that you took it out in.

bbsrs

Rojomcdojo wrote: »

To answer your question though, your mortgage will remain in the currency that you took it out in.

How do you know that ?

NWPat

your mortgage will remain in the currency that you took it out in.

How do you know this? I took my first mortgage out in Punts and when Ireland's national currency was changed to the Euro the mortgage changed to Euro. If our national currency was to revert to the Punt the evidence would suggest that mortgages would follow suit.

strandroad

The money for your mortgage has been borrowed abroad in euro and would be owed to abroad in euro. The amount could be converted to punt, not at the 1:1 rate however, but at whatever the new currency rate would be as the punt would devalue immediately. You would be earning in punt but still paying off your mortgage in euro (or its punt equivalent). Not fun.

Count Dooku

Rojomcdojo wrote: »

To answer your question though, your mortgage will remain in the currency that you took it out in.

What happen with those who took it in punts?

Count Dooku

mhge wrote: »

The money for your mortgage has been borrowed abroad in euro and would be owed to abroad in euro. The amount could be converted to punt, not at the 1:1 rate however, but at whatever the new currency rate would be as the punt would devalue immediately. You would be earning in punt but still paying off your mortgage in euro (or its punt equivalent). Not fun.

Mortgages which were taken in local currency must be paid in local currency. If it was euro before and punt now, it is doesn't matter. Nobody had choice when their punt mortgages have been converted to euro

NWPat

NWPat wrote: »

How do you know this? I took my first mortgage out in Punts and when Ireland's national currency was changed to the Euro the mortgage changed to Euro. If our national currency was to revert to the Punt the evidence would suggest that mortgages would follow suit.

When you mortgage was converted from Punts to Euro, did they do it at the ECB conversion rate ?

Godge

Two possible options.


(1) Your mortgage stays in euros. In that case you will have to repay it in euros but your income will be in punt nuas. Say the exchange rate is 2 punt nua to 1 euro following the quick devalutation, the effective cost of your mortgage will double as your income is in punt nua unless you can move to Europe. The good part is that your interest rate would be linked to the euro interest rate so that will not affect you.

(2) Your mortgage is converted to punt nua. As this is done on the first minute of the change, the exchange rate will be 1:1 so the cost of your mortgage initially will not change as everything will be 1:1 and you will not be affected by the subsequent devaluation to 2:1. However, to maintain a stable exchange rate, the new Irish central bank will have to keep interest rates several points above those in Europe, which given these are so low, will be at least twice the Euro rates, meaning the cost of your mortgage will double.


In effect, you won't get a double whammy, but you will be affected by either tthe devalued rate of the punt nua or the higher interest rates the new Irish central bank will have to set. Impossible to predict which is the better outcome, except to say that either way the cost of your mortgage will go up.

The only possible person who could possibly escape this hit would be someone on a fixed rate but in that case I would be saving like mad to pay off the mortgage when the fixed rate ran out.

Lads I'm not even going to dignify those questions with an answer. Use google. There's plenty of examples that exist currently of people in MANY countries who owe their mortgages in currencies that aren't their own. This is fine until their own currency is worth bugger-all against the currency the mortgage was taken out in.


The Punt-Euro was organised and planned. We knew what punts were worth in Euros and that was a stable figure. An unwinding of the Euro will not be similar at all.

Godge

Godge wrote: »

Two possible options.


(1) Your mortgage stays in euros. In that case you will have to repay it in euros but your income will be in punt nuas. Say the exchange rate is 2 punt nua to 1 euro following the quick devalutation, the effective cost of your mortgage will double as your income is in punt nua unless you can move to Europe. The good part is that your interest rate would be linked to the euro interest rate so that will not affect you.

(2) Your mortgage is converted to punt nua. As this is done on the first minute of the change, the exchange rate will be 1:1 so the cost of your mortgage initially will not change as everything will be 1:1 and you will not be affected by the subsequent devaluation to 2:1. However, to maintain a stable exchange rate, the new Irish central bank will have to keep interest rates several points above those in Europe, which given these are so low, will be at least twice the Euro rates, meaning the cost of your mortgage will double.


In effect, you won't get a double whammy, but you will be affected by either tthe devalued rate of the punt nua or the higher interest rates the new Irish central bank will have to set. Impossible to predict which is the better outcome, except to say that either way the cost of your mortgage will go up.

The only possible person who could possibly escape this hit would be someone on a fixed rate but in that case I would be saving like mad to pay off the mortgage when the fixed rate ran out.

It looks like either way the bank would be taking a massive hit on their loan boook due to the drop in value after the conversion?? and therefore due to the Fianna Fail bank guarantee the taxpayer would be taking a bit hit.

Godge

Godge wrote: »

(2) Your mortgage is converted to punt nua. As this is done on the first minute of the change, the exchange rate will be 1:1 so the cost of your mortgage initially will not change as everything will be 1:1 and you will not be affected by the subsequent devaluation to 2:1. However, to maintain a stable exchange rate, the new Irish central bank will have to keep interest rates several points above those in Europe, which given these are so low, will be at least twice the Euro rates, meaning the cost of your mortgage will double.

You're dreaming if you think this is what would happen. Our banks (and the country itself) would still owe their loans in Euros/Dollars etc. Just because the government comes in and says we're introducing the 'punt nua' at 1:1, doesn't mean it will be 1:1 five minutes after the markets get their hands on it. We would probably be in default by the time the this happened also, based on the fact that nobody will currently lend to us at rates we can afford and this is taking into account the fact that we are and look set to be a part of the Eurozone going into the future.

Godge

Deleted User wrote: »

It looks like either way the bank would be taking a massive hit on their loan boook due to the drop in value after the conversion?? and therefore due to the Fianna Fail bank guarantee the taxpayer would be taking a bit hit.

The biggest hit would be on the mortgage-holder. If mortgages were converted to punt nua, so would the deposits, so savers would be hammered as well. You can be sure that the banks would use the opportunity to widen margins.

The banks would be affected in terms of money owed to the European Central Bank. All in all, an exit from the euro would not be pretty.

Icepick

You would owe a lot more and the state would be bankrupt.

bbsrs

Doh!

NWPat

Deleted User wrote: »

When you mortgage was converted from Punts to Euro, did they do it at the ECB conversion rate ?

sorry for the delay in answering, but yes it was, everything was converted at a rate of 1.27 euro to the punt.

later12

The chances are that under the Lex Monetae principle, domestic contracts like mortgages and savings would be re-denominated in An Punt Nua. Redenomination (or cross border) risk here is signficant.

The same risk is lower on securities under foreign contract law: for example, the Central Bank's Euro debt, and private company debts under European law. The calamity following on from successful court cases which assert the necessity of these debts to be paid in Euros would result in a catastrophic level of default.

If anyone is interested in cross-border risk, there is an interesting chart which explains it here.



The potential fall out from a partial Euro break up with peripherals resorting to new non-Euro currencies is so potentially ruinous to this and to the European economy that I have no hesitation in saying I think it is an extremely unlikely eventuality which would reap very questionable benefits - (probably Ireland could be the only peripheral to benefit from competitive devaluation in the long term; the other PIGS certainly couldn't).

So technically OP, the answer is that your mortgage would be converted to An Punt Nua.

However, it is far more likely that your mortgage will remain in Euro, or else in a new auxiliary Euro for the peripheral economy (the Pigs Dollar)