Buying a condo, MLR Loan explained ?

[Nakonamath]

Hi

Can anyone explain to me what MLR stands for when talking loan rates ?

i see the loanrate is 7-7,5MLR %

What is MLR ?

In my home country, Fixed loanrate is around 4.5 pr year before tax.

so it is hard for me to understand the 7 % thing

Kind regards

Jack

[Naam]

it shouldn't be too hard to understand that different countries with different currencies have different interest rates.

MLR = minimum lending rate

[AyG]

The MLR is the minimum interest rate that a bank will lend to customers that are seen as a good credit risk. This rate varies over time according to economic circumstances.

Mortgage rates here are normally expressed as MLR + x%. So, for example, if the MLR is 7% and your mortgage is MLR + 1/2% you'd be paying 7.5% interest annually. If the MLR then rises to 8% you'll be paying 8.5%.

[Nakonamath]

allright so MLR is not fixed loanrate

meaning, the loan is quite expensive when i compare with ect. Denmark, where a fixed inrest loan is 4.35 right now, even if the intres rate raise the loan is still fixed at 4.35

do i misunderstand something ?

but if i take 1 mio loan at 7% 30year, i will pay 1.5 mio in intrest only ?

if that is so, then the loans here are very f.... expensive compared to Denmark.

While other bank fees are even more expensive than Denmark aswell.

Jack

[AnotherOneAmerican]

allright so MLR is not fixed loanrate

meaning, the loan is quite expensive when i compare with ect. Denmark, where a fixed inrest loan is 4.35 right now, even if the intres rate raise the loan is still fixed at 4.35

do i misunderstand something ?

but if i take 1 mio loan at 7% 30year, i will pay 1.5 mio in intrest only ?

if that is so, then the loans here are very f.... expensive compared to Denmark.

While other bank fees are even more expensive than Denmark aswell.

Jack

Compared to Denmark, loan expensive, house cheap.

Don't forget the 5% compulsory life insurance they deduct from the loan, but don't tell you about until it's too late to pull out.

So a 1M loan for 30 years, they only actually pay you 950K (+750K life insurance for 20 years).

Edited August 4, 2013 by AnotherOneAmerican

[AyG]

Correct. Loan rates based upon MLR are not fixed.

No, the loan is not expensive compared with Denmark. You need to take exchange rate into consideration. Without going into (rather complex) detail, if you combine interest rate and expected foreign exchange movements, things work out roughly equal. That's because there are bankers out there who will borrow in one currency and lend in another according to what they think is best value for money. (Technically this is known as "arbitrage".)

You could borrow in Denmark at a lower interest rate, but you'd probably find that the value of the Krone will fall over the 30 years against the Baht - at least, that's what the financial markets are predicting - meaning that you end up paying just as much in the long run.

[Nakonamath]

Correct. Loan rates based upon MLR are not fixed.

No, the loan is not expensive compared with Denmark. You need to take exchange rate into consideration. Without going into (rather complex) detail, if you combine interest rate and expected foreign exchange movements, things work out roughly equal. That's because there are bankers out there who will borrow in one currency and lend in another according to what they think is best value for money. (Technically this is known as "arbitrage".)

You could borrow in Denmark at a lower interest rate, but you'd probably find that the value of the Krone will fall over the 30 years against the Baht - at least, that's what the financial markets are predicting - meaning that you end up paying just as much in the long run.

Hi,

Hi, i dont see why the exchange rate have anything to do with this.

My wife earn her money in Thailand not Denmark,

If the math is so simple as we pay almost the double in intrest rate, well then it is expensive as hell ! Not i understand why people suggest we buy in cash money.

Jack

[Nakonamath]

allright so MLR is not fixed loanrate

meaning, the loan is quite expensive when i compare with ect. Denmark, where a fixed inrest loan is 4.35 right now, even if the intres rate raise the loan is still fixed at 4.35

do i misunderstand something ?

but if i take 1 mio loan at 7% 30year, i will pay 1.5 mio in intrest only ?

if that is so, then the loans here are very f.... expensive compared to Denmark.

While other bank fees are even more expensive than Denmark aswell.

Jack

Compared to Denmark, loan expensive, house cheap.

Don't forget the 5% compulsory life insurance they deduct from the loan, but don't tell you about until it's too late to pull out.

So a 1M loan for 30 years, they only actually pay you 950K (+750K life insurance for 20 years).

OK well,

i Do not agree fully with the houses are cheap. and that said, the bank is not building the house, so i would not compare it like that.

As i see it, the banks are earning quite some good money here !!!

Jack

[yoshiwara]

Correct. Loan rates based upon MLR are not fixed.

No, the loan is not expensive compared with Denmark. You need to take exchange rate into consideration. Without going into (rather complex) detail, if you combine interest rate and expected foreign exchange movements, things work out roughly equal. That's because there are bankers out there who will borrow in one currency and lend in another according to what they think is best value for money. (Technically this is known as "arbitrage".)

You could borrow in Denmark at a lower interest rate, but you'd probably find that the value of the Krone will fall over the 30 years against the Baht - at least, that's what the financial markets are predicting - meaning that you end up paying just as much in the long run.

Hi,

Hi, i dont see why the exchange rate have anything to do with this.

My wife earn her money in Thailand not Denmark,

If the math is so simple as we pay almost the double in intrest rate, well then it is expensive as hell ! Not i understand why people suggest we buy in cash money.

Jack

A significant number of people in Eastern Europe took out property loans designated in Swiss francs because the interest rates were low and then have subsequently been hit because their income is not in Swiss francs and their local currency has declined against the Swiss franc. So now you know how the exchange rate can have a lot to do with mortgages which are not taken out in the income currency of the borrower.

Edited August 4, 2013 by yoshiwara

[AyG]

Hi, i dont see why the exchange rate have anything to do with this.

I'll try and put it simply. Imagine you have 1,000,000 DKK to invest, and you can either keep it in DKK and get 0.2%/year or put it in THB and get 2.5%/year. Why would anybody keep their money in DKK when they can get much more interest in THB? There are a number of factors, but one key one is that the market's expectation is that the exchange rate between the two currencies will shift, so that at the end of the year the THB will have lost value against the DKK, meaning that the end amount in your pocket is the same which ever currency you invest in. If this were not the case, foreign exchange traders would make bets against the less successful currency which would cause the exchange rate to shift - a process known as arbitrage.

Now, from the bank's perspective, the interest rate is charges for mortgages is based upon the amount of interest it has to pay out plus a bit to cover its costs and its profit.

The fact that mortgage interest rates in Thailand are higher than those in Denmark is partly because the market expects the value of the Baht to fall against the Krone.

[jonclark]

Just to note most banks offer fixed rate promotional offers for the first 3 years based on the current MLR (minus say 2%) after you have the option of either continuing with your mortage at the bank and here your rate would be dependent on a) the future MLR and your 3 year record of payments to date. If you are a good creditor and pay more than you mortage amount and on time - the banks want you so may come up with a new offer to keep you on board.

Alternatively you can refinance after 3 years and get a new promotional rate from other banks

[Naam]

Correct. Loan rates based upon MLR are not fixed.

No, the loan is not expensive compared with Denmark. You need to take exchange rate into consideration. Without going into (rather complex) detail, if you combine interest rate and expected foreign exchange movements, things work out roughly equal. That's because there are bankers out there who will borrow in one currency and lend in another according to what they think is best value for money. (Technically this is known as "arbitrage".)

You could borrow in Denmark at a lower interest rate, but you'd probably find that the value of the Krone will fall over the 30 years against the Baht - at least, that's what the financial markets are predicting - meaning that you end up paying just as much in the long run.

which financial markets are predicting that the Danish Krone will fall vs Thai Baht over the next 30 years?

[AyG]

Correct. Loan rates based upon MLR are not fixed.

No, the loan is not expensive compared with Denmark. You need to take exchange rate into consideration. Without going into (rather complex) detail, if you combine interest rate and expected foreign exchange movements, things work out roughly equal. That's because there are bankers out there who will borrow in one currency and lend in another according to what they think is best value for money. (Technically this is known as "arbitrage".)

You could borrow in Denmark at a lower interest rate, but you'd probably find that the value of the Krone will fall over the 30 years against the Baht - at least, that's what the financial markets are predicting - meaning that you end up paying just as much in the long run.

which financial markets are predicting that the Danish Krone will fall vs Thai Baht over the next 30 years?

It's not a 30 year prediction - it's a short term prediction. The interest rates concerned are variable and will change according to economic circumstance and market expectations and exchange rates will shift accordingly. The implication of the quoted example is that the DKK/THB exchange rate will move from 5.57 to 5.70.

[Naam]

Correct. Loan rates based upon MLR are not fixed.

No, the loan is not expensive compared with Denmark. You need to take exchange rate into consideration. Without going into (rather complex) detail, if you combine interest rate and expected foreign exchange movements, things work out roughly equal. That's because there are bankers out there who will borrow in one currency and lend in another according to what they think is best value for money. (Technically this is known as "arbitrage".)

You could borrow in Denmark at a lower interest rate, but you'd probably find that the value of the Krone will fall over the 30 years against the Baht - at least, that's what the financial markets are predicting - meaning that you end up paying just as much in the long run.

which financial markets are predicting that the Danish Krone will fall vs Thai Baht over the next 30 years?

It's not a 30 year prediction - it's a short term prediction. The interest rates concerned are variable and will change according to economic circumstance and market expectations and exchange rates will shift accordingly. The implication of the quoted example is that the DKK/THB exchange rate will move from 5.57 to 5.70.

please enlighten us what part of

you'd probably find that the value of the Krone will fall over the 30 years against the Baht - at least, that's what the financial markets are predicting

is "short term".

[fletchsmile]

MLR = Minimum Loan Rate. It's the banks internal reference rate on which loans for that particular type are based. You may also see terms like MHR = Minimum Housing Rate, MOR = Minimum Overdraft Rate.

It's loosely similar to what other countries may refer to as a standard variable rate or Prime rate. The term "Minimum" isn't necessarily accurate though, as banks will often lend at MLR - X%. rather than MLR being the low base and an add on for gradually worsening credits. If MLR really was a low base then in theory the rates offered (apart from special time based promotions) should be MLR + X %.

This being Thailand they've taken a concept and adapted in their own way. They looked at standardising these better for the industry, but it didn't happen yet.

So it's simply reflecting that the rate is variable not fixed, and linked to the bank's own Minimum Lending Rate reference for that product. When their rate is adjusted upwards, so is your rate, similarly downwards.

Cheers

Fletch

Edited August 5, 2013 by fletchsmile

[AnotherOneAmerican]

So it's simply reflecting that the rate is variable not fixed, and linked to the bank's own Minimum Lending Rate reference for that product. When their rate is adjusted upwards, so is your rate, similarly downwards.

Cheers

Fletch

Except for the last adjustment down (0.25%), when MLR wasn't adjusted down.

Edited August 5, 2013 by AnotherOneAmerican

[fletchsmile]

So it's simply reflecting that the rate is variable not fixed, and linked to the bank's own Minimum Lending Rate reference for that product. When their rate is adjusted upwards, so is your rate, similarly downwards.

Cheers

Fletch

Except for the last adjustment down (0.25%), when MLR wasn't adjusted down.

Don't mix up the central bank rate and the bank's own internal reference rates (here MLR).

When I say "their rate" I'm referring to the banks own internal reference rate, eg MLR When this is adjusted the lending rate received by a customer from the bank moves up and down accordingly.

When the central bank adjusts its rate, individual banks will often (though not always) adjust their own reference rates, such as MLR. So the customer rate depends on the MLR set by bank. The MLR set by bank is influenced by the central bank but doesn't correlate 100%. Hope that clarifies

Cheers

Fletch

[Nakonamath]

I give up understanding it, i just need to trust the bank, :-)

[richardt1808]

Hah,

Some people here are complaining about a 7% interest rate which they think is too high. A few years ago, the bond rate in South Africa was 13% It was killing property owners, but investors were having a field day on their bank deposits.

[blackcab]

Closed.