I am looking at the latest in extreme borrowing techniques. This one involves yet another 2% loan financing scheme except that it is offered for rental properties only. The first thought that comes to mind when one sees 2% financing options is expectation of another negative amortization option arms scam where 2% is the payment option with the actual interest rate being much higher.

But loans from WhyPayDouble.com offer a genuine 2% interest rate or even lower. What’s the catch? The catch is the loan is in Yen. All I can think of is that someone is making a massive bet that the Yen is going to appreciate greatly. Alternatively, someone is just looking for another way to collect big origination fees off uneducated and unsuspecting borrowers. Let’s take a look at the hype.

We are offering a yen-based United Kingdom AAA rated bank (LloydsTSB, since 1765) for purchasing or re-financing residential properties in the:

UK, Australia, New Zealand, Spain, Portugal, France, Dubai, Singapore, Hong Kong, Canada (BC, Ontario, Alberta & Quebec), USA – states of:

* New York
* New Jersey
* California
* Florida
* Colorado
* Washington
* Oregon
* Nevada
* Connecticut
* Hawaii

All qualified at 1.5% – 2.03% for up to 30-year terms as of January 1st, 2007.

Clients can obtain “in principle” agreements without cost or obligation for loans at the lowest interest rates of any country in the world and on flexible terms. The minimum loan amount is $75,000.

These loans can be for purchases or re-financing. This is based solely on the client’s assets, liabilities and earnings. The bank will wish to see proof of employment and assets etc… in order to conduct a cash flow analysis and ascertain his or her ability to repay the loan. Once done, the bank will offer a loan amount and interest rate specific to each client (anywhere from 1.5% to 2.03%), depends on which country your from, the offer is valid for six months.

Why can Japan offer such low rates?

Because the Japanese government’s lending rate is so incredibly low. That’s it, nothing more. Take a look at the chart below and see the national average for a 30-year mortgage rate. As of January 9th, 2007.
• US 6.04%
• New Zealand 8.7%
• Dubai 9.02%
• UK 6.4%
• Australia 7.33%
• Japan 1.92%

Triple Play

Great. Just what everyone needs:

  1. A chance to get hammered on declining property values
  2. A chance to get hammered on rising interest rates again (this time in Japan)
  3. A chance to get destroyed on a rising Yen

Interest rates in Japan are poised to rise and the Yen along with it. If not now, then sometime huge over the life of the loan (30 years).

More Hype

This is by far the most stable lending rate of any country of the world. The US Federal Reserve Rate which the world banks follow, goes up and down like a yo-yo, changing with whatever economic theory is most prevalent at the moment to control growth.

Lenders have been trying for years to break into the Japanese Lending rate market for years without success, because it would offer homebuyers so much more for their money, as this article from Money-Week magazine says, check it out.

A bull market in property is just beginning – but where?

It basically says that this low interest rate is normal in Japan. Its so cheap in comparison that people will either be able to cut their current payments drastically or they will be able to afford a much bigger house for the same payment as a smaller house. This will radically shift the homebuyer’s abilities in America today and in for this program the rental owners options have just sky rocketed.

Send in your application and see if you can get it!

For starters that is not what the article says at all. The MoneyWeek article essentially says “Buy Japanese Real Estate”. It most assuredly does not say to buy US investment properties because rates in Japan are low. It does not discuss the impacts of the Yen at all (likely a positive reason for buying Japanese properties and certainly a negative factor for those borrowing in Yen while collecting rents in other currencies). And it most assuredly does not say to borrow money in Yen to finance investment properties outside of Japan.

While Japanese real estate is likely a bargain compared to most other places the article itself is so full of holes it is hard to know where to start rebutting. If 0% interest rates were so good in and of themselves then why did Japanese real estate sink for decades?

The article does state “The government will do everything in its power to prevent going back into bust mode. It will NOT get in the way as property prices start to rise. And it will do everything possible to keep prices from falling.“. This is another absurd statement. If the government could do anything about what happened it would have done so long ago. In fact, it is extremely likely that Japanese government intervention is exactly what prolonged the bottoming period.

But the fact that Japanese interest rates have been held so low so long means they have only one way to go and that is up. With that hike in interest rates the Yen will likely rise as well. But this blog is not about poorly written articles on MoneyWeek, it is about …..

Pure Sleaze

Property value in New Zealand has been going up 30%+ a year! But, for future projections its always best to be negative so I’ll walk you through year-by-year of what could happen to you if the property values drop every year for 30 years straight. This is about as negative as you can get, but let’s walk this through one year at a time and see what your half a million dollar property would be worth at the end of this terrible decline.

• Year 1: this year your new 500,000 dollar property goes up by 30%, (500,000 x .3 = 150,000 gain in value your first year).
• Year 2: your 650,000 dollar property goes up by 29% = 188, 500 increase in value.
• Year 3: your 838,500 dollar property goes up by 28% = 234, 780 increase in value.
• Year 4: your 1,073,280 dollar property goes up by 27% = 289, 785.60 increase in value.
• Year 5: your 1,363,065.60 dollar property goes up by 26% = 354,397.06 increase in value
• Year 6: your 1,717,462.7 dollar property goes up by 25% = 429,365.68 increase in value.
• Year 7: your 2,146,828.4 dollar property goes up by 20% = 429,365.68 increase in value.
• Year 8: your 2,576,194.1 dollar property goes up by 19% = 489,476.88 increase in value.
• Year 9: your 3,065,671 dollar property goes up by 17% = 521,164.07 increase in value.
• Year 10: your 3,586,835.1 dollar property goes up by 13%=466,288.56 increase in value.
• Year 11: your 4,053,123.7 dollar property goes up by 10%=486,374.84 increase in value.
• Year 12: your 4,539,498.5 dollar property goes up by 9% = 408,554.87 increase in value.
• Year 13: your 4,948,053.4 dollar property goes up by 8% = 395,844.27 increase in value.
• Year 14: your 5,343,897 dollar property goes up by 7% = 374,072.79 increase in value.
• Year 15: your 5,717,969 dollar property goes up by 4% = 285,898.45 increase in value.
• Year 16: your 6,003,867.5 dollar property never goes up again for the next 15 years!

You pay off your 500,000 dollar original loan and end up with over 5 million in profits from the land value increase.

I would be embarrassed to be associated with such nonsense if I was Loyds TSB. The “Why Pay Double” example purports to show the effects of “what could happen to you if the property values drop every year for 30 years straight” but instead starts off year 1 with a 30% increase (as if that is normal) then proceeds to assume enormous increases for 14 more years.

How do you know when you are getting a bad deal? One way to tell is if an ad is pure sleaze. And this ad is as sleazy as ads can get.

Mike Shedlock / Mish/