I live in Dubai but own an apartment in Europe in which I have about 50% equity and 50% in a mortgage. I use the apartment myself duing my stays in Europe so it is not rented out to anyone for rental income.*
My income is in USD but my mortgage is in the currency of the country where the apartment is. The way my mortgage works is in 2-year fixed periods. At the end of each fix period, the interest rate changes and I can pay a lump sum toward the principal with no penalty (this type of mortgage is very common in the country where the apartment is located). The fix period is up this month and the new rate will be 5.31% (it was 3.39% for the past two years).
Over the past two years the USD has fallen about 22% against the mortgage currency. I have enough USD to pay off the apartment entirely, but I am wondering what the best move is: Do I pay no extra principal, a little bit (say 10%) or just pay it off?
My thought is to not tie up too much money in the apartment, but I also want to protect myself against the fall of the USD. Would you just move a bunch of USD into local currency or maybe gold and carry the 5.31% for the next two years, or is it better to pay it down?
In two years the interest rates could be much higher at which point I could pay it off if need be. However at the same time inflation could work in my favor.
- Actually the flat is owned by a company which I own 100% of, so I pay “rent” to my own company and it pays the mortgage.