Leveraging euros against low value of dollar

[nonconformnmom]

I am no financial whiz, by any means, so I don't know if my idea makes sense. I'd like some advice. I live in the U.S. but I have some money in an account in Europe that I've been saving to use for an investment when the right opportunity comes along.

Now that the euro is worth approx. 1.55 of the dollar, I am wondering whether this represents a good opportunity to use some (but not all) of my Euro nest egg.

What I was thinking of doing is to withdraw some of my euros and use it to pay off my mortgage because it seems to me that I'd be able to pay it off for somewhere in the neighborhood of half what I would be paying if I make the monthly payments in dollars. Does this make sense?

I have plenty of retirement savings, and I have a cushion of savings here in the U.S. for emergencies. I have no consumer debt; my mortgage is my only debt.

Advice? Comments? Suggestions?

[umarider]

I assume that when you deposited the money in the European acct, the $ was strong(er) vs. the Euro? If so, for example, if 1$=1euro at that time, then you've made a 55% profit! So, yeah, I would take that "found" money and get yourself completely debt-free! Just don't kick yourself if the dollar falls still more than it already has. If that happens, remind yourself that no one can make definite predictions about economies. Then go outside and gaze happily at your paid for house! Good for you!

[polyhymnia]

I have some money in the UK in GBP. I am leaving it there because I spend from that account whenever I am in the UK - I'd rather not gain now by converting it back to dollars and risk losing even more in the future if the dollar drops even more.

if you don't anticipate using Euros again in the future - you could bring it back now, you could gamble and wait to see if the dollar gets any weaker. It's a gamble for sure

[xekomaya]

Well, the true way to decide if you should use money to pay off a mortgage is to calculate the after tax cost of the debt. Since your mortgage interest is tax deductible, you'd do: [(interest rate on your mortgage)* (1- (your tax rate)] (EX: My mortgage is at 6%, my tax rate is 28% - my after tax cost of debt is .06*(1-.28) = .06*.72 = .043 or 4.3%

Then you would take the resulting number and compare it do the growth on your euro account. I don't really know how to include a projection for future fluctuations of the value of a dollar/euro, but its more than likely that long term you won't get a better rate than the growth you've already seen in currency.

I would probably pay off the mortgage if you have "typical" numbers for mortgage and savings...

[velochic]

If I were you, I would leave it there (and I am you because we also have an account in Euros in Germany). I don't think we've seen the worst of the fall of the dollar. I believe that there is a good chance that we could see some hyperinflation in the US before this recession is over, especially since the Fed's answer to everything seems to be just print more money. I heard an expert on Fresh Air (NPR program) yesterday saying that he believes we are headed for a depression. I think you should keep those Euros. That's just me, though.

[Guinevere]

Something else to be aware of is that you are technically supposed to report any foreign bank accounts that hold over $10,000 US to the IRS for tax purposes. If the money has just been sitting there for a number of years, not attracting any attention, it's not such a big deal, but if you transfer it over here to pay off/down your mortgage, that action is more likely to get the IRS's attention and make them wonder where the large cash influx came from. So my caution would be to seek out some tax advice on the ramifications of what you're considering before doing it.

Guin

[WendyC]

I'm a currency day trader - its been a very profitable time for me. But I deal in the differences in the third and fourth decimal point of the prices (called pips) which is on a micro-scale, where as you are talking about the macro-differences, so take my advice with a grain of salt.

I would encourage you to use those Euros now, because the talk on the trader boards is that Europe (at least southern Europe) has gotten themselves into the same kinda mess as we did with overleveraging home values and using cheap credit. There is suspision that the not so smart financial decsions of the southern countries could offset the smart decsions of the northern countries. Which means in the coming months the price could even out a bit more with the dollar.

So if this repersents a nice profit for you - take it! The thing about curriencies is that they are always doing crazy unpredictable things. What I would do is take out a percentage now (like 25-50&#37 and then wait and see if it goes up or down some more then take another percentage out.

IMO - America does not own the market on stupidity. lol. Plenty of stupid people in Europe have the power to bring down the value of their currency like we did ours. (I use the collective 'we' that encompasses our stupid, stupid Fed Reserve)

[nonconformnmom]

Thanks everyone, you've given me a lot to consider in weighing my decision. I think I will do it; I can still leave a good cushion of euros in my overseas account; but I will free up a lot of cash to use to pay for my daughter's college tuition and other new expenses that are coming up this year.

[SusannahM]

I agree with Velochic. I don't think the dollar is finished dropping yet. The Fed and Pimco's main manager (Pimco has Alan Greenspan on the payroll as an advisor) have all hinted very heavily at the answer to the housing "crisis" will be printing more dollars.