Home Loan - Variable Vs Fixed

[AndyFarang]

The better half is applying for a loan of 4M over 20 years, seems that the banks currently do not offer a fixed rate for the term, all of them have MLR-x% (apart from the 1st or 2nd years).

Standard Chartered seems to have one of the most attractive at the moment (named Mortgage One) with a rate of MLR-1.1% from Year 3 onwards.Their MLR (actually called 'MHR') is currently 6.45%.

However, when looking for a Fixed rate over the long term, the only one on offer nowadays is from AACP Insurance (Allianz CP) who offer a fixed rate of 6.25% over the term. (Its a shame the loan wasnt needed 8 months ago as Krungsri had a fixed rate back then of around 4.2%!! :-(

My questions, if anyone can throw some light on things, are:

- Does anyone have experience with mortgages from an Insurance company? What might be the pitfalls compared with a bank?

- For a period of 20 years (assuming we might pay if all off halfway through, if we're lucky) would Variable rates be a better option, as the last 10 years Thailand has seen an average MLR of around 6%, so the Fixed rate might mean we pay more - I guess its a gamble....

- What are the key questions that should be asked of the banks before signing for the loan?

- Does anyone have experience with either Standard Chartered or AACP mortgages?

Thanks in advance for any opinions :-)

Edited January 15, 2011 by AndyFarang

[trogers]

Had taken up a fixed interest mortgage (10-year loan) for my first condo in 1994 at 10.25% with AIA.

Interest rates shot up above 18% in the period of 1997-1999 due to the Asian Financial crisis. No other complications, paid up regularly till maturity and had the title deed free from encumbrance of the loan and returned to us.

Your consideration would probably be the anticipation of interest rate movements during the first 12 years of the loan period, as this is period when paying off interest is more than the principal.

Fixed interest at 6.25% seems to me an attractive sum to cover uncertainty over such a long period.

[blakegeee]

I was also thinking about this as we are working on getting a loan for a house. Apparently the current rate of 6.25% is relatively low right now, so it would likely be a good choice if its possible to get this fixed rate for the term, right? Also, every few years it is possible to make a big payment on the principle and then recalculate the interest remaining. Is it usually possible to change from fixed to variable or vice versa at those points?

[AndyFarang]

6.25% is the current rate, so if one can get a 2-3 year reduced rate on this, all the better. After 3 years I believe its possible to search for another provider, though with a penalty which varies depending on your original lender.

I guess noone has experience with Std Chartered or AACP, and from other sources I seem to be getting the feeling that so long as we can change lenders, then variable is just as good as fixed - though the gamble still remains..........ho hum...

[sirineou]

There are only 3 main reasons why anyone would chose an Adjustable Rate Mortgage (ARM):

one: is that you would get a lower rate and qualify easier.

Two: you expect interest rates to to go down.

three: You expect to sell, or refinance the property before the fixed rate expires and it converts to an ARM .

I personalty don't expect interest rates will decline significantly in the next few years.

if you chose an ARM mortgage you must be careful you understand the terms.

For instance, a 5 Year ARM means that you will have an introductory fixed X rate and in 5 years it will convert to the average rate at that time , there are many averages used, the question to ask is, What average is used (ie Lipper av. etc)

an other question to ask is how many base points it can increase per Year, some ARM mortgages have a limitation of x points increase per year.

Make sure there are no balloon payments,

Make sure there are no prepayment penalties.

IMHO with the volatility present in the financial market now times, an ARM is a risky proposition

[blakegeee]

There are only 3 main reasons why anyone would chose an Adjustable Rate Mortgage (ARM):

one: is that you would get a lower rate and qualify easier.

Two: you expect interest rates to to go down.

three: You expect to sell, or refinance the property before the fixed rate expires and it converts to an ARM .

I personalty don't expect interest rates will decline significantly in the next few years.

if you chose an ARM mortgage you must be careful you understand the terms.

For instance, a 5 Year ARM means that you will have an introductory fixed X rate and in 5 years it will convert to the average rate at that time , there are many averages used, the question to ask is, What average is used (ie Lipper av. etc)

an other question to ask is how many base points it can increase per Year, some ARM mortgages have a limitation of x points increase per year.

Make sure there are no balloon payments,

Make sure there are no prepayment penalties.

IMHO with the volatility present in the financial market now times, an ARM is a risky proposition

Obviously this ARM is the "varible" or "floating" rate mortgage that we are talking about? What the banks here offer is MLR (floating currently @ 6.25%) minus a discount for the first 3 years (maybe MLR -2%), and then just a small discount after that, like MLR -0.25%. The Bangkok bank told us that they do not offer any fixed rate mortgages, simple as that. The interest rate fluctuates with the market. If they offer a fixed rate, than I would certainly be interested in that with the way the economy is. Apparently the current MLR (6.25%) is very low for Thailand and it was around 10% just 5 years ago. Does anyone know how to get a fixed rate here? I get the feeling that it needs to be arranged with an insurance company???

[CWMcMurray]

We just purchased our home last year and at the time looked at about a half a dozen Banks and all advised the same thing... they do not offer fixed mortgages...

[trogers]

We just purchased our home last year and at the time looked at about a half a dozen Banks and all advised the same thing... they do not offer fixed mortgages...

Banks do not due to short term deposits, but some insurance companies do due to long term policies of their customers.

[blakegeee]

We just purchased our home last year and at the time looked at about a half a dozen Banks and all advised the same thing... they do not offer fixed mortgages...

Banks do not due to short term deposits, but some insurance companies do due to long term policies of their customers.

At this point, we don't have any insurance so I guess "fixed rate" is out of the question? The mortgage that we have been offered includes 2 insurance policies. One is in case the wife dies, the mortgage will be paid off (16,000b), and the other is just theft/fire/floor insurance and only about 7000b for the 10 year term. Neither of these policies is optional if we accept the loan.

[CWMcMurray]

That is pretty normal, we also had to take out insurance as well. After all, the bank has to protect their loan.

[AndyFarang]

The wife had to take out both insurances also, but double your amount for the death/accident/etc one - but it covers for 10 yrs.

The best deal we can get from a bank (for 80% of property value) seems to be Year 1 & 2 @ MLR - 2.5%, then -1.1% for remaining 13 yrs.

Only insurance companies offering fixed now.

Thanks Siri for the input - the above mortgage has no balloon payments, and no major penalties if re-finance after 3 yrs.

We'll go to sign it all this week, before the offer gets withdrawn ;-)

cheers

[blakegeee]

The wife had to take out both insurances also, but double your amount for the death/accident/etc one - but it covers for 10 yrs.

The best deal we can get from a bank (for 80% of property value) seems to be Year 1 & 2 @ MLR - 2.5%, then -1.1% for remaining 13 yrs.

Only insurance companies offering fixed now.

Thanks Siri for the input - the above mortgage has no balloon payments, and no major penalties if re-finance after 3 yrs.

We'll go to sign it all this week, before the offer gets withdrawn ;-)

cheers

Our death/accident insurance also covers the 10 years of the loan, but your loan may be double the amount of ours. We are only borrowing 1.2M. From Bangkok Bank, we are getting;

Year 1: 4%

Year 2: 4.25%

Year 3 and after: MLR - .25%

So it sounds like your interest promotion was better than ours. Ours is the "Home Expo" promotion or something like that. It has actually just finished now but we are in already.

[AndyFarang]

The wife had to take out both insurances also, but double your amount for the death/accident/etc one - but it covers for 10 yrs.

The best deal we can get from a bank (for 80% of property value) seems to be Year 1 & 2 @ MLR - 2.5%, then -1.1% for remaining 13 yrs.

Only insurance companies offering fixed now.

Thanks Siri for the input - the above mortgage has no balloon payments, and no major penalties if re-finance after 3 yrs.

We'll go to sign it all this week, before the offer gets withdrawn ;-)

cheers

Our death/accident insurance also covers the 10 years of the loan, but your loan may be double the amount of ours. We are only borrowing 1.2M. From Bangkok Bank, we are getting;

Year 1: 4%

Year 2: 4.25%

Year 3 and after: MLR - .25%

So it sounds like your interest promotion was better than ours. Ours is the "Home Expo" promotion or something like that. It has actually just finished now but we are in already.

Ah I see, yes, the wife got a loan for more, so that makes sense.

FYI, she went with Std Chart:

1st - 3.7%

2nd - 3.95%

3rd ==> MHR - 1.1%

Seemed to be the best deal from all those we went to see in past 2 months, though hoping interest rates dont climb "too" much ;-)