Refinancing a Mortgage, Over-Payments And Robber Interest Rates

[NightSky]

My wife purchased a property about 3 years ago in her name which we live in now. I paid a down payment of about 20% and she qualified for a mortgage quite easily for the remaining at the time. She was working and the criteria to qualify for the mortgage seemed quite easy to meet. The developers of new villages have deals with specific banks usually and this one was with Aomsin bank.

 

The mortgage was a 3 year introductory offer and averages around 4.5% for the 3 years and after the 3 years finishes the standard rate applies currently more than 7% which is high for a mortgage compared to some other countries.

 

Anyhow my wife no longer works for the same company, instead she works for her own small business and as a result two banks have declined her refinancing fora new mortgage deal.

 

If she is unable to quality for a new deal she will be trapped into paying the 7% robbers rate.

 

What is surprising to me though is that we've made over payments the passed 3 years and there is about 65% equity and she only needs to borrow about 35% against the value of the property. She has never paid late and she paid off finance for car etc and she earns enough on paper.

 

The reason for declining her was that the company didn't pay enough VAT...??? I put this down to 'not being a big enough company' which it isnt since its only a micro business.

 

Also the bank is asking for a much higher monthly payment based on the original 85% amount rather than the 35% amount because we made over payments during the past 3 years but the monthly payments did not re-calculate as the bank told me they would do. Shouldn't the bank be able to re-calculate the monthly payment based on the over payments we made?

 

It seems ridiculous she cannot get the mortgage for the remaining 35% and the bank wont recalculate the monthly payment based on over payments made and I almost believe the banks are colluding to make refinancing more difficult so that higher rates are due. If refinancing mortgages are more difficult to secure for refinancing there may well be an influx of repossessions due in the pipeline after the first 3 years 'deals' are completed.

 

Does anyhow have any similar experiences or info about the banks and over payments?

[blackcab]

The ability to repay is crucial. The legal process of seizing and selling a non performing residential property in Thailand is costly for a bank. To be truthful, the bank does not want the expense and unpredictability of seizing a property. What they want is the predictability of their money repaid on time. This means the first and most important criteria is the mortgagee's ability to repay.

 

If the ability to repay cannot be demonstrated then it is likely the application will fail.

 

It's always going to be tough as a small business owner. As you well know, many small businesses fail for all the usual reasons. Thai banks know this and judge the risk accordingly.

 

Try different banks. If you keep getting the same answer then continue to pay off the mortgage as quickly as possible.

[NightSky]

Ok but what about all the money we have paid down as over payments, shouldn’t the bank recalculate the monthly payments to make it affordable. 

 

The payments are over 34k/month when In fact according to online mortgage calculators the actual payment should be around 15k

 

 

[BritManToo]

2 minutes ago, NightSky said:

Ok but what about all the money we have paid down as over payments, shouldn’t the bank recalculate the monthly payments to make it affordable. 

Over payments just reduce the term of the loan, standard for all the banks in Thailand.

[NightSky]

33 minutes ago, BritManToo said:

Over payments just reduce the term of the loan, standard for all the banks in Thailand.

 

33 minutes ago, BritManToo said:

Over payments just reduce the term of the loan, standard for all the banks in Thailand.

Yes I understand that now but at the time of the contract I asked if over payments are calculated daily and the bank quickly said yes and couldn’t wait to get my wife to sign it.

 

Anyhow I will need to approach the bank to lower the monthly payments. I could pay off the loan from savings but of course that locks up emergency funds and brings more money into Thailand that I will need to get out again one day after selling the house hence my hesitation.

 

 

 

[BritManToo]

1 minute ago, NightSky said:

Yes I understand that now but at the time of the contract I asked if over payments are calculated daily and the bank quickly said yes and couldn’t wait to get my wife to sign it.

The interest is calculated daily, they just don't don't change the repayment amounts but shorten the repayment term.

[fletchsmile]

58 minutes ago, BritManToo said:

Over payments just reduce the term of the loan, standard for all the banks in Thailand.

You're right, it's the standard. There are one or two exceptions to that standard worth looking at if you can find

 

We have a mortgage with Tisco - formally Stan Chart, called Mortgage One. SCBT were quite innovative on their mortgages until they exited retail business in Thailand. 

 

With our mortgage we can overpay up to 50% of the outstanding balance by paying into an account which offsets the outstanding mortgage loan. That excess overpaid can be withdrawn at any time. If we overpay by more than 50% it can't be withdrawn.

 

So borrow 10 million. Pay excess of 5mn (i.e park most of your savings/deposit accounts there instead of usual accounts), and pay interest on only 5mn. Should we wish to withdraw that 5mn in part or whole we can do any time, eg school fees bill comes along, emergency, Xmas or whatever. 

 

If we pay over more than 5mn though then the XS above that can't be withdrawn and is pemanent. It reduces the loan outstanding

 

It can significantly reduce your interest and the proportion of the monthly payment which is capital vs interest, as monthly repayments remain constant - reset once a year during our 3 year fix

 

Cheers

Fletch ????

[blackcab]

24 minutes ago, NightSky said:

I asked if over payments are calculated daily and the bank quickly said yes and couldn’t wait to get my wife to sign it.

 

What you are told means nothing. What matters is what the contract states in writing. You need to ask the bank to point out the relevant clause in the contract and have someone with a knowledge of Thai contracts translate for you.

[fletchsmile]

Thai mortgage lenders are generally more focused on ability to repay / service debt than they are on the collateral provided.

 

Makes sense really to focus first on whether you can repay, and then secondly on collateral if you don't. That's logical really. Many western lenders could have learnt a few things from that during the GFC.

 

Foreclosure in Thailand takes longer and is messier than in say US/UK. So they want to avoid that where possible.

 

So yes it's a nice plus she has 65% equity in the house. Yes it's nice she has a good credit history. These will contribute to a good score in the bank's credit models assessing her application

 

But a key driver remains her ability to service the debt/ meet the payments. So on the negative side: her income is now more irregular. The new business also doesn't have an established history. This brings down her scores in banks credit modelling. It likely outweighs the good credit history and collateral.

 

Yes the not enough VAT point is basically saying the company is small, new and with low income.

 

From the bank's point of view the new small business income is much higher risk than a salaried employee.

 

 

[fletchsmile]

You're well aware that you got a promotional rate. You really need to make sure you can continue at the normal rate once the promotion period extends.

 

When taking out a mortgage you should also be thinking about life changes that may happen, eg becoming self employed, what happens if you get made redundant etc, have children and how you would address them.

 

You really don't want to be relying on refinancing at promotional rates and be hopping from bank to bank every 3 years. Banks aren't stupid they don't want people doing that. Otherwise the promotional rate becomes effectively the normal rate.

 

 

[fletchsmile]

1 hour ago, NightSky said:

Ok but what about all the money we have paid down as over payments, shouldn’t the bank recalculate the monthly payments to make it affordable. 

 

The payments are over 34k/month when In fact according to online mortgage calculators the actual payment should be around 15k

 

 

Western mortgage contracts tend to do it that way. So yes in the UK they should usually be doing as you describe

 

Thai mortgage contracts don't and do it the way you are finding as standard.

 

If a Thai goes to the UK they may likely ask "shouldn't the monthly repayment be the same, why do they keep changing?" They have a valid argument for complaining about the uncertainty in monthly amounts.

 

Swings and roundabouts. Key is understanding your contract and the country norms/ standards

[NightSky]

5 hours ago, fletchsmile said:

You're well aware that you got a promotional rate. You really need to make sure you can continue at the normal rate once the promotion period extends.

 

When taking out a mortgage you should also be thinking about life changes that may happen, eg becoming self employed, what happens if you get made redundant etc, have children and how you would address them.

 

You really don't want to be relying on refinancing at promotional rates and be hopping from bank to bank every 3 years. Banks aren't stupid they don't want people doing that. Otherwise the promotional rate becomes effectively the normal rate.

 

 

Yes we can continue at the normal standard robber rate and this was taken into consideration at the time. However, if there are options not to pay the higher robber rates that is what Im asking.

 

Thais I've spoken with who havn't yet finished their 3 year intro deal rate seem to think refinancing is the answer.

 

I'm also asking how to lower the monthly payments without having to pay off the mortgage in full and without needing to sell the property which may be an option I look into also.

 

I guess the only way then is to ask the bank if they will lower the monthly payments based on the additional over payments made or keep trying to refinance at other banks or seek a non-mortgage loan or sell which I assume wouldn't be a quick answer.

 

 

 

 

[NightSky]

I’m going into the bank later this week to ask if there are any means of lowering the monthly payment since my wife no longer earns the same amount and since we’ve paid down 65% of the loan already. 

 

It would be interesting to hear if anyone has ever asked the banks this question before and suceeded in securing a lower fixed monthly payment based on previous overpayments and new financial circumstances.