If you need to make overseas loan repayments , then there are options that allow you to automate the international money transfers, get good exchange rates and low fees, and potentially lock in the exchange rate for a fixed period.
Many Australians moving abroad to work retain their home in Australia with a mortgage. Whilst they may choose to rent out their home, in many cases the rent will be insufficient to cover the mortgage repayments, and so they will be reliant on transferring money to meet their overseas loan repayments in Australia.
In addition, many Australians buy property overseas and need to make overseas loan repayments on their overseas investment properties, or Australian expats may have an outstanding student loan liability and need to make HECS repayments while living abroad.
To get the best exchange rate, for most expats it makes sense to use a money transfer company rather than your bank. As we have found, using a money transfer company can save you up to 4% on each money transfer compared to using your bank.
In addition to using a money transfer company, you can also automate your overseas loan repayments. Here are a few ideas to consider :
- Open an account with a money transfer company
- Consider using forward contracts to lock in your exchange rate for up to 1 year
- Setup automatic transfers (recurring payments) to avoid any penalties for late payments
- Consider sending a larger sum of money when exchange rates are favourable
1. Open An Account with a Money Transfer Company
There are a number of international money transfer companies around. Each company often focuses on only a few countries or currencies, or only quotes exchange rates for immediate money transfers. As soon as you want to do anything a little more sophisticated (eg. setting up recurring transactions, or locking in future exchange rates), or deal in some of the less common currencies then your options are far more limited.
Money transfer company OFX (previously known as Ozforex in Australia and Ukforex in the UK) :
- deals with over 55 currencies and operates in over 190 countries
- allows you to setup recurring payments , and
- you can access various currency risk management options like forward contracts (locking in exchange rate for future transfers)
2. Consider Using Forward Contracts
A Forward Contract is an arrangement that allows you to lock in an exchange rate now for a money transfer on a future date (usually up to 12 months). With a forward contract you know exactly how much money you will receive for the future currency transfer.
When you have a loan in one currency and are earning money in a different currency, a forward contract can be very useful in order to protect you from significant fluctuations in exchange rates. This is particularly important if you one of the currencies you are dealing with is quite volatile or if your budget is tight and you cannot afford for the currency to move in the wrong direction.
3. Set Up Recurring Payments
Whilst a late payment here and there may not seem like a big deal, it could hurt your credit rating and impact your future ability to obtain a loan. Just like when you setup an automatic direct debit to pay your utility or telephone bills, you can setup a recurring international money transfer.
The process to do this with OFX is simple
- Once you have opened an account online, speak with their customer support people who will provide you with a quote;
- Once you accept the quote, you pay the first transfer amount and an advance payment (deposit) for the second transfer; and
- OFX then transfer the agreed amount to your nominated account in accordance with the schedule you agree
4. Consider sending a larger sum of money when exchange rates are favourable
Although picking the best time to transfer based on the exchange rate is near on impossible, when the currency generally operates in a reasonably cyclical manner it may be possible to time the market a little to capture a better exchange rate.
In addition, depending on the money transfer company you use, you may be quoted a better exchange rate if you are transferring more money in one go. For example, OFX provides a more competitive exchange rate the larger the amount of money you are transferring, where as companies like Currency Fair (which only offer spot money transfers) take a fixed margin no matter the size of your money transfer.
Disclaimer : This information is for educational purposes only and does not constitute financial or taxation advice. As this information is not advice and has been prepared without taking into account your objectives, financial situation or needs you should, before acting on this information, consider its appropriateness for your circumstances. Independent advice should be obtained from an Australian financial services licensee before making investment decisions, and a registered (tax) financial advisor/accountant in relation to taxation decisions. To the extent permitted by law, we exclude all liability for any loss or damage arising in any way. The Australian Expat Investor has an affiliate relationship with OFX.