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My husband and I are from the US but are legal Costa Rica residents, we live here and our income is from the US and is in US dollars
We are about to sign a US $ mortgage with a local Costa Rica bank, we know we have negotiated good terms but here is what I am worried about and what we don’t honestly understand real well.
If our mortgage is in US dollars and our income is in US dollars if the US dollar continues to fall in value does that mean that we will suffer? Or the people that we are buying from will suffer or the bank will suffer?
Are we doing the right thing?
What could go wrong or, is this good for us if the US dollar continues to fall?
We have learned so much from this forum and are hoping that someone can anyone explain the different scenarios to us in easy to understand language? English please.
Maybe an expert opinion is needed here, but I’ll venture a guess. The dollar fell a bit over 4% against the Colon the other day. What some of this means, is that your dollar holdings, SS, and pension funds, are worth that much less than it was last week, when converting to Colones.
The mortgage, if it is in US dollars, should be consistent with dollars, one for one.
If the dollar continues to fall, and the colon is revalued further, this could have a serious impact on your resources.
By purchasing real estate, you are converting dollars into a hard asset. Although the Costa Rica real estate market is mostly dollar/US buyer based, part of what has helped prices accelerate and stay at their current levels is the demand from Canadians, Europeans and S. Americans who find dollar priced assets to be a bargain these days. If the dollar continues to fall, Costa Rica will continue to become increasingly attractive for non-US foreigners and that effect should continue. By converting your US dollars to a hard asset with international demand(like gold which has flourished lately), you’ve hedged yourself somewhat to the risk of the dollar going weaker.
In terms of your mortgage, if you are paid in US dollars and your mortgage is in US dollars, you are taking the most conservative approach. You’ve mitigated currency risk. You know what your payment will be in dollars every month and can match it to your income stream on a steady basis. If you truly believe that the dollar will continue to fall, you might consider moving some investments or savings into non US stocks/mutual funds or foreign currency (the Euro has performed incredibly)…..another form of hedging.
Neither you or the bank stand to lose perse. You’ve “locked in” and the banks are in the business of hedging currency. As for the seller….history has yet to produce many people who wouldn’t have faired better by not holding on to their Costa Rica real estate for another 5 years.
Your mortgage will not suffer from currency fluctuations if your income is the same currency as your debt. I second (or third) what’s been said so far. As mentioned, this is the most conservative approach for your mortgage.
Using the 4% USD drop the other day against the CRC as an example, the things that will become relatively more expensive for you are the things you buy in colones, which apart from your mortgage, is probably most everything else! Things like gas, food, clothes, etc. All things that you buy with a USD price tag remain the same, like your mortgage, perhaps some utilities like Cable TV, possibly private schools or tourist activities. It’s possible though that these entities like the utility companies, schools and tourism companies will raise their prices so that they are not losing on the USD exchange rate. The bank will not change the terms of your mortgage though.
A far more risky approach would be to have a mortgage in colones with a USD income. You win if the USD becomes more valuable in the future and you lose if it falls. Some Costa Ricans have done the same thing, but with income in colones and USD mortgages. Just as risky, but they have been smiling lately because their payments in terms of colones have been decreasing, in other words their USD payment is costing them fewer colones out of their salary. Your salary or your income is the relative factor.
If your mortgage is from a bank, it’s most likely a fixed rate only for the first few years. Then it becomes variable being tied to most likely the 6-Month LIBOR or the US Prime Rate. Mine is a couple or a few points over the 6-Month LIBOR after 5 years. Which one to take is something to consider, but 5 years is a looooooong ways down the road, so it’s hard to say. Personally, I see having a USD mortgage tied to the 6-Month LIBOR as more conservative (diversified) as it changes according to state of an economy in another country, England.
You can see more about LIBOR – the London Interbank Offered Rate at { http://www.wisegeek.com/what-is-libor.htm ] where it states:
“LIBOR, the London Interbank Offered Rate, is the most active interest rate market in the world. It is determined by rates that banks participating in the London money market offer each other for short-term deposits. LIBOR is used in determining the price of many other financial derivatives, including interest rate futures, swaps and Eurodollars. Due to London’s importance as a global financial center, LIBOR applies not only to the Pound Sterling, but also to major currencies such as the US Dollar, Swiss Franc, Japanese Yen and Canadian Dollar.
LIBOR is determined every morning at 11:00am London time. A department of the British Bankers Association averages the inter-bank interest rates being offered by its membership. LIBOR is calculated for periods as short as overnight and as long as one year. While the rates banks offer each other vary continuously throughout the day, LIBOR is fixed for the 24 hour period. Generally, the difference between the instantaneous rate and LIBOR is very small, especially for short durations.
The most important financial derivatives related to LIBOR are Eurodollar futures. Traded at the Chicago Mercantile Exchange (CME), Eurodollars are US dollars deposited at banks outside the United States, primarily in Europe. By holding the deposits outside the country, US depositors are not subject to Federal Reserve margin requirements, allowing higher leverage of the funds. The interest rate paid on Eurodollars is largely determined by LIBOR, and Eurodollar futures provide a way of betting on or hedging against future interest rate changes.
Interest rate swaps are another significant financial derivative dependent on LIBOR. In an interest rate swap, two parties exchange sets of interest payments on a given amount of capital. Generally, one party will have a fixed interest payment, while the other will have a variable rate. The variable rate payment stream is often defined in terms of LIBOR. Interest rate swaps, and by extension LIBOR, are extremely important in providing a liquid secondary market for residential mortgages, which in turn allows lower interest rates on US mortgages.
While LIBOR does have implications for transactions conducted in Euros, the advent of the Euro has brought with it the creation of the Euribor. Conceptually similar to the LIBOR, the Euribor benchmark is defined and maintained by the European Banking Federation.”
Scott Oliver – Founder
WeLoveCostaRica.comAs a sidebar to this topic, and as an observation of what is happening in the US, there is something realistically troubling about the dollar’s decline. As we’ve seen it already against the Euro, any US citizen wishing to retire to, or those that have retired in Europe, are getting hammered if their income is tied to Social Security, US dollar annuities or pensions. Having already lost any financial advantage in European retirement, we now see Costa Rica being put in a similar position. How much further will the dollar slide? I won’t even guess, but if you are a Baby Boomer, this has to be of some concern.
The question I have is, are they trying to keep us from leaving? With the massive amount of people retiring in the next ten years, that might be considering relocating outside of the US, are they worried the economy might take a hit with all those retirement dollars being spent in other places? Not being a big conspiracy theory believer, I still have to wonder what is really going on.
Bob Chapman, of the “The International Forecaster” may have hit the nail on the head whe he said:
“People in the U.S. are going to be hit hard,” Chapman warned. “In the severe recession we are entering now, Bush will argue that we have to form a North American Union to compete with the Euro.”
“Creating the Amero,” Chapman explained, “will be presented to the American public as the administration’s solution for dollar recovery. In the process of creating the Amero, the Bush administration just abandons the dollar.”
The Amero, the ‘Security and Prosperity Partnership Of North America’ are NOT rumors or “conspiracy theories”, these are real stories which should have been front page news for years as you can clearly see from the following websites:
Take a look at http://www.spp.gov/
http://www.spp.gov/report_to_leaders/index.asp?dName=report_to_leaders
http://www.amerocurrency.com/ and http://oldfraser.lexi.net/publications/critical_issues/1999/amero/
http://educate-yourself.org/cn/americannworegions01may06.shtml
http://endiana.blogspot.com/2007/10/fox-confirms-amero.htmlScott Oliver – Founder
WeLoveCostaRica.comThe “Amero” has been bandied about for a while now. Ever since the meeting in Crawford Texas between Bush, Fox and Martin, rumors have abounded. It is the darling of the elitists, and a way to have two smaller economies tied into what is still 29% of the world’s GDP, the USA economy. Even though other markets are growing more rapidly, will the transition ever come to pass?
The American people, and by this I mean US citizens, though we are all Americans if born in north or south America, are a fiercely independent group. We have always been. Whether liberal or conservative, we are individualists. If anyone thinks we will surrender our sovereignty to a union cooked up by politicians, they have another guess coming. As we discussed in an earlier thread, where is the revolution? This would be a defining and compelling situation to bring a revolution about. We once fought for independence, and what makes anyone think it could not happen again if this union tries to be enacted. Free trade agreements are one thing, loss of sovereignty and control over our own monetary and economic system is another.
While on the surface, there would seem to be a sensible argument, whereby a larger economic system would bring about parity with the Euro and other currencies, in the deeper sense, we would be absorbing countries with smaller economies and have to bail their troubled systems out. Much like the EU doesn’t want Turkey in their union. Unless the US falls into such a state where we are broken enough to be equal to the GDP of Mexico, we will not do it. I don’t think we will stand for a lowering of our living standards to “third-worldism” without a fight. And that is exactly what would happen with a unified currency.
Having said all the above, the stage is almost set for lawmakers to attempt the implementation of this unified currency plan. A falling dollar, lousy real estate market, unstable equities markets, rising cost of living, loss of jobs, diminishing manufacturing capabilities, and the inability to secure our own borders, will give rise to telling the American people this is our only hope. Trade agreements, with NAFTA and CAFTA being at the forefront, would make transition to the Amero system that much easier. All the elements are falling into place, but will we really go for it?
Only economies having a lower standard of living will rejoice at the prospect of having “Big Brother” come to their assistance. If the US manages to squander everything we once had, we may look for help as well. Until such time, I doubt it. I don’t think we will go down the tubes without a major battle. We will wake up before it is too late, get up off our lazy collective as**es and rise to the occasion, throw out the bums in office, and produce, like we have always done in the past. We have survived depression, recessions, wars, epidemics and a whole host of other miseries, but we are still here. We will not go quietly into the night! It’s just not in our makeup to do that.
We have already gone quietly into the night, Alfred. It has taken a few decades of the gradual and inevitable effects of outsourcing production and labor and loosening of immigrant restrictions, legal and otherwise. It’s a done deal. We are just awaiting the official trappings of an all encompassing currency to match the soon-to-be realized all encompassing low worker bee salaries.
Either our rich, masters have played their hand well, or the american people have become quite stupid or blinded by greed or the american dream recently. In either case, the rich get richer and the poor get poorer…this is the REAL end game of captitalism. You did not see this coming and that is why you still believe the american people have a say in this and will create a revolution. Too late. The rich have already had a revolution and they won.
Edited on Nov 28, 2007 10:59
Edited on Nov 28, 2007 11:01
What makes you think that Canada would want to tie it’s ship to the US?
I can’t think of any good reasons.
Alberto
Alberto, That was what was discussed in the meeting at Crawford, TX, between Martin, Fox and Bush. I don’t know what Canadian citizens think, but the PM was all for it at the time.
Sprite, It looks like you are in the “all is lost” camp. We both have differing opinions of how this will turn out. One of us will be right, and the other wrong. Even though most times we all would like to be right, this time I really hope I am. I’m still going to be here a lot longer than you before retirement. I would at least like to try to make a last ditch effort to help turn things around.
Your assessment may be closer to the truth than mine, still, there is a reason to make a stand for what is left of our country. My question to you is, what if Costa Rica signs on to the Amero one day, are you going to relocate again? See, this is the problem, if we keep running away from a bad situation, we may ultimately find ourselves backed into another corner. By then we’ll most probably be dead, but we can’t keep letting it go down the drain because we won’t be here. If you have children or any other younger relatives, it has to figure into the equation.
Well, Martin is no longer the prime minister of Canada, thankfully, we have a PM now who has a lot more common sense.
Alfred, I am not running from a possible currency change. As I said, this is a done deal and Costa Rica, along with the rest of this hemisphere and the world, is going to be subject to all the ramifications. Like climate change, this is an evolution, for better or worse, and there is little you or I or millions of others will do about it now which will have much effect.
We will all have to get acclimated to some pretty draconian changes coming soon and I am betting that being in Costa Rica will be easier than trying to get by in the States. The States are going to see the most dramatic changes. I just don’t have that youthful enthusiasm for civic volunteerism I used to and it is depressingly clear to me that we each have to take care of ourselves now. Good luck, though,in your efforts.
Alfred, I don’t know that much about the Amero plans, but IF the US/Canada/Mexico were to get together with one Parliamentary system & Gov’t—Who do you think would be running the show? Do you really think the US would hand its power over to the Mexicans? Ha, that’ll be the day! If there is one government considering this as an effective tool to further CONTROL this Hemisphere (I mean further than with nasty little trade agreements like NAFTA/CAFTA), then that would be the good old US of A…Don’t you think? Canadians would be crazy to go for this–they’ve followed a different set of ethics and politics along their history. God only knows what this may mean for the Mexican people and of course, this doesn’t mean that typical US citizens would want that–You’re right, this country’s citizenry is fiercely independent. We may not mind when our government tells others how to live (or even if they’re allowed to live), but we certainly don’t want anyone else to even “think” they can tell US what to do. This arrogance might serve some good by preventing or stalling this monster from being created…The interesting thing is that this would “dissolve” all of the immigration issues (maybe with easier & legal attainment of Mexican slave labor…) we now find so troublesome because if we become one huge entity then it doesn’t really matter who is a Mexican, who is a Canadian or who is US born. In theory, ALL should be able to cross the borders without a problem, but I think this is just another excuse to CONTROL people’s movements, their monies and their resources on a grand scale for further US Corporate power…. Including gaining a huge bank of “disposable” soldier people that could easily be sacrificed in any further display of muscle around the world…
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