Currency Exchange When You Buy a House in Mexico

As we have remarked elsewhere on these pages, the Mexican peso is a free-floating currency on world foreign exchange markets and is among the world’s most-traded currencies.  The value of the peso has fluctuated over the years and predicting exchange rates is often a thankless endeavor.

Foreigners who intend to buy, build or renovate a residential house in Mexico usually need to sell units of their home currency buying Mexican pesos to fund the project. Most foreign buyers spend between US$150,000 and US$500,000 (or equivalent) for a typical dwelling space in Mexico—depending on the location, size and type of home. Luxury homes in the most desirable locations change hands for significantly more.

Payment might be staged or made all at once. Either way, when you’re selling your foreign currency to buy a home in Mexico, the rate at which you buy Mexican pesos will significantly influence the final price you pay for your home.

How exchange rates affect the price you pay

Suppose you intend to spend $5 million pesos buying, building, or renovating a home in Mexico. The table below illustrates how many US dollars you’ll need depending on the exchange rate:

Mexican pesos to 1 USD	Buying $5m Mexican pesos
21	US$ 238,095
20.50	US$ 243,902
20	US$ 250,000
19.50	US$ 256,410
19	US$ 263,158
18.50	US$ 270,270
18	US$ 277,778
17.50	US$ 285,714
17	US$ 294,118

As the table above illustrates, if the Mexican peso weakens to 21 pesos to the dollar, a five-million-peso home will cost around 240,000 in US-dollar terms. However, if Mexico’s peso strengthens to 17, that exact same purchase will cost around 295,000, which is 55,000 dollars more.

Also, keep in mind that the exchange rate advertised is often the “interbank” rate, so if today’s price is quoted at 19 pesos, you’re likely to be offered 2% to 4% less than this when you go to a retail bank to sell your foreign currency and buy or wire Mexican pesos.

Payment scenarios when buying or building a house in Mexico

There are typically two scenarios for payments when you buy a home in Mexico:

• Making a one-time payment, with or without an initial deposit.
• Buying or building a house using a staged payment schedule.

One-time payment, with or without a deposit

When purchasing a house outright in Mexico, buyers usually make a single payment, or pay a deposit followed by a final payment at closing. In either case, securing the best possible exchange rate at the time is vital. When the closing date is some months after the deposit date, locking in a guaranteed exchange rate in advance enables you to budget confidently in your home currency.

Buying a house in Mexico using staged payments

Buying a house in Mexico using a staged payments schedule is typical in three scenarios:

• When you buy a house from a developer before it’s built on a pre-sale arrangement—sometimes referred to as buying “Off-plan.” (In Spanish these transaction are known as preventa.)
• When you are building or renovating a house in Mexico and ‘chunks’ of money are needed as stages of the building or renovation unfold.
• Some sellers might also accept staged payments as a form of seller-led credit.

When you are faced with having to pay, for example, five million pesos over the course of a year or more, locking in a set exchange rate can help you to budget for the project in your home currency and mitigate additional costs if the peso happens to get stronger during the course of the payments schedule.

Hedging against currency fluctuations

Foreign exchange rates are not easily predicted, but a financial service exists that enables buyers of Mexican property to hedge their currency risk, mitigating the effect of foreign exchange rate fluctuations during the course of the purchase, or building/renovation period.

The purpose of currency hedging is therefore to help you budget confidently in your home currency and avoid additional costs in the event that the Mexican peso strengthens in value during the course of the purchase cycle.

How MexEdge could help you to manage your house purchase budget

MexEdge offers a service that simplifies currency exchange for property purchases in Mexico. They coordinate with trusted banking partners to help you lock in your exchange rate and assist with transfers between your home country bank and your bank account in Mexico (or the escrow or seller’s account), providing a personalized service and guiding you every step of the way. MexEdge never directly handles your funds.

MexEdge’s currency partners also offer better exchange rates than retail banks typically offer.

When you intend to transfer at least US$100,000 (or equivalent) to buy a house in Mexico, learn about how MexEdge could help. A free personal consultation is available to discuss individual situations.

The information contained in this article is published in good faith and not intended to constitute personal, professional, legal, financial or investment advice, nor replace the services of professional advisors.