Condo Mortgage Structure

[Kapmoo]

Hi,

I would like to ask what may seem like a dumb question, but I am not too familiar with how Thai banks structure condo mortgages. I have taken a look at monthly mortgage payments on a condo that recently came into the receivership of a family member and noticed that each month the total amount due is the same, but the amounts paid to principle and interest change - dramatically. One month the majority is paid to principal and the next to the majority is to interest. This came off as odd to me and triggered some red flags that this mortgage may have been structured to maximize total interest paid to the bank. Is this normal? Secondly, if this is a bad deal, what are the options for trying to turn this around for them? Would paying more monthly or even paying the entire loan off earlier change anything, or would it still require paying all the interest the bank has calculated over the 20-yr period of the loan? Thanks!

[isawasnake]

Rather inexplicably, I have heard of loans here being terrible. "Penalties" for paying off in full. That is really so Thai, if they think they are going to make money, they usually have a hard time denying themselves that income, even if it is not justified.

I would not be at all surprised to see a loan structure designed to generate more income for them, as you have noted. It is probably all in the contract though, which you can get translated easily enough.

I have not gotten a loan here, but interested in seeing what others who have will say.....

[trajan]

to the OP...I have had several condo mortgage loans here in Thailand by myself over a period of years here...I have a permanent residence book...

MONTHLY FIXED PAYMENT (& variable interest rate)

what you describe is typical from my own experience...the amount payable per month is fixed....the interest rate payable is variable (e.g., current MLR (minimum lending rate) minus 1%)

as such, the fixed amount paid per month is allocated to principal and interest depending on the then applicable MLR rate...for example if the MLR rate goes up from 6.5% to 7% in a particular period, the interest component of the fixed amount paid per month goes up (and the principal amount goes down)....the converse is true......however, I have never seen violent shifts (up or down) in the ratio between interest and principal amount components from month to month......

ACCELERATED PRE-PAYMENT

I have also had situations where I pre-paid a large sum towards the mortgage loan, but the fixed amount payable per month remained the same...however, in such case, the principal amount component of the fixed monthly payment really jumps up and the interest amount component became much much smaller (because, of course, the overall remaining principal amount of the loan (upon which interest is charged by the bank) was drastically reduced by the large pre-payment..,,.

PRE-PAYMENT PENALTY

I have only come across a possible pre-payment penalty (in the loan documentation) if I tried to pay off (or accelerate paying off, even in part) a mortgage loan within the first 2 or 3 years of the life of the loan. That point is moot for me because the fastest I have ever prepaid an otherwise longer term mortgage was 4 or 5 years.

In short, I don't think there is anything particularly sinister about the loans (as alluded to by the other poster)....they are quite useful to give you flexibility if you can get them (but i only wished, of course, the interest rates were lower and fixed...like those current amazingly low fixed interest rates in US real estate mortgage loans).

I hope this helps....

[Kapmoo]

The latest info I received from a person who spoke to the bank was that the payments were due at the beginning of the month, but the person had been paying at the end of the month. One way or another, this resulted in payments being on time with minimal interest one month, while the next month the payment would be late for most of the month and a nasty interest charge incurred. I'm still trying to work it all out in my head, as it seems like if this were the case then it would be late every month. I have never been good with these kind of timing issues - my main value added here was to let these people know that a ridiculous amount of interest was being paid and that one should find a way to stop it asap. The plan now is to make the payments as scheduled and double the minimum payment. After a month or two, we can look at the mortgage payment statements to see if this does the trick. I was told there is not a penalty for early repayment of the entire loan.