13 Feb, 2024

By Brian Menges

Is it interesting for Canadian and Americans to borrow in Canadian dollars (CAD). Intuitively, the benefit of a Canadian financing the purchase of real estate in Mexico using CAD is obvious – there is no exchange rate risk for the Canadian borrower, but the benefits don’t end there.

Borrowing in CAD may hold unexpected benefits for both Canadians and Americans when they earn income in USD. Earning revenue in USD and paying mortgage financing in CAD can generate savings, due to the historically favorable CAD/USD exchange rate.

As we can observe from the above table, overall, in the past 50 years (February 1973 to February 2023) the CAD/USD exchange rate has been below parity over 92% of the time.

The added benefit for Canadians and Americans who earn USD either from rental income on their Mexican property or from their employment income in their home country is that the repayment of CAD debt in USD can reduce the net effective cost of their borrowing. For example, if you purchased a property in April of 2013 using 11.9% CAD denominated mortgage financing, for the 10 years between April 2013 and March 2023 the net effective cost of funds after the CAD/USD exchange would have been 9.09%. Likewise, had you purchased in April 2008 the net effective rate for the 15 years between April 2008 and March 2023 would have been 9.85%. In both cases a significant savings was achieved simply by taking advantage of the arbitrage created by historically favorable CAD/USD exchange rates.