Many people are considering Mexico as a place to spend the “Best years of their Life” and are doing research to see if Mexico meets their needs. One item that is often overlooked is the impact of changing currency.
There are many situations you will face involving currency exchange when moving to Mexico. For example, let’s say you decide to buy a house. Normally, house prices are in U.S. dollars and payment is usually made to a U.S. bank. That’s fine if you live in the U.S. But what if you are a Canadian? You will need to buy U.S. dollars.
Rarely, you may be required to pay in pesos so, in this case, both U.S. and Canadian residents would need to buy pesos.
Plus when you live in Mexico, you will need to buy pesos to cover your cost of living. You may want to transfer your pensions to a Mexican Bank. You may also consider moving money to invest in one of the local Investment Brokerages, like Actinver or Multiva.
Whatever the reason, you will face the need for currency exchange and there are some things you should consider.
Currency Fluctuation
On a daily basis, the exchange rate for U.S./Canadian dollars and pesos ‘fluctuates.’ (Consider the recent changes in the Canadian dollar to the U.S. dollar.)
In the short term, the changes are not very large, but over a longer period of time, they can be significant. Consider the following example that affects Canadians:
"If you had been looking to buy a property in Mexico priced at $300,000 USD at the beginning of August 2006, it would have cost approximately $330,000 CAD due to the exchange rate. Only six months later in February 2007, the same property would have increased in cost to $355,000 CAD. In other words, the property in six months became $25,000 CAD more expensive, due simply to exchange rate fluctuation."
OR conversely
"If you were looking to buy a $300,000 USD property in Mexico today (September 2007), it would cost you approximately $300,000 CAD. If five years ago you had been looking to buy the same $300,000 USD property, it would have cost you a staggering $485,000 CAD! In other words, the same property is now $185,000 CAD (almost 40%) cheaper than it was five years ago! Wow!...All because of exchange rate fluctuation. This example sure puts it into perspective how important it is to consider currency exchange."
This also demonstrates the current advantage for Canadians who are considering purchasing property in Mexico. The time has never been better.
Exchange Rate
There are many websites that have a currency exchange calculator. You simply insert an amount in one currency and request the exchange amount in a different currency. The answer will pop up and it will show you the exchange rate.
The question is, "is that the buy or the sell rate?" There is a significant difference.
Let's say you go into the bank with $1000 USD and want to change it into pesos. The exchange rate may be 10.5 pesos for each dollar, so you get 10,500 pesos (buy rate).
If you have 10,500 pesos and you want to exchange it for dollars, the rate may be 11.2 so you receive $937.50 (sell rate).
The difference between buy/sell rate is 0.7 which is equal to approximately $62.50. Also, depending on where you go to exchange your money, there can be a significant difference in the rate offered. On a small amount of money, this doesn't seem like a lot, but if you are making a large purchase or bringing in regular payments over time, this can really add up to be a lot of money out of your pocket.
Most of us go to our bank to buy other currencies. This is not the best way to do it as banks usually offer a lower rate of exchange.
To test the currency converter from HiFX click on the picture below:
Transfer Costs
Often, the quickest way to transfer funds to a different location is by wire transfer. This can be costly, especially when sending to another country. This will involve exchange rates and transfer fees.
How can you save money?
First and foremost, shop around for rates and costs. You should also contact a "Currency Exchange Company." This is very important when transferring significant amounts (say for buying a home) or making regular transfers (pensions/payments).
"Working with a currency exchange specialist to make property payments can not only save you time and hassle, it can also save you money. The fact is that many individuals will simply use the exchange rate offered by their personal bank. Currency specialists can typically offer more competitive rates of exchange than personal banks, to save you on the cost of your property. When you deal direct with the International Currency specialist, that extra money you would have paid to the bank, stays in your pocket, thus reducing your cost of the property or whatever you were using the money for. The bank may also charge wire transfer fees, commissions and bank receiving fees. Many individuals don’t realize there are better alternatives available to them.
HiFX (International Currency Exchange Specialists) has seen an average savings of 1% to 4% of the transaction amount for its clients, and, in addition, will transfer funds free of charge. On larger transfers the savings can turn into thousands of dollars. HiFX does not speculate with funds and all funds are held in a secure private client trust account. It may be worth speaking with a consultant at HiFX to register, with no cost or obligation."
The above quote is from Tom Wight of HiFX, a company specializing in Currency Exchange. Apparently, they also offer a service where you can lock in an exchange rate for a two-year period. This could be very useful when making multiple payments over a period of time.
"Currency exchange specialists like HiFX can help you protect against currency fluctuations that would increase the cost of your property by locking in an exchange rate for up to two years with a 'forward contract.' This service can be useful if you have a lengthy closing period or future property payments. With a 'forward contract,' you will have locked in the cost of the property and will be unaffected by any volatility in the currency market. HiFX provides 'forward contracts' free of cost and requires only a 10% deposit." says Tom
So for instance, if you have having a house built in Mexico, and are making payments over several months, there are several advantages for using this service.
1) Free wire transfers (every month, this can add up)
2) No fees
3) Lower currency rates (can save you literally thousands of dollars)
4) You can lock in your currency exchange rate for the whole period at no cost
a. This allows you to forecast the future and locks in the exact cost of your property.
b. The currency rate is locked in for all the payments so no matter what fluctuations happen in the market, you know what rate you have.
c. This can give a lot of peace of mind
It is common to overlook the effect of currency exchange. When moving to a different country, it is worth your while to make the effort and do your homework. It could save you a lot of money.
To contact or visit the HiFX site click below:
Disclaimer: This article is for information purposes only. As with all financial transactions, you should do your due diligence prior to making any financial commitments. A small referral fee may be paid to Focus on Mexico from HiFX.