There’s a saying that you need to refinance your home loan three times in order to optimize it. Why so? When buying a house, most people opt for a home loan with a bank for long-term repayment periods like 15, 20, or 30 years. Homebuyers know that interest offers by banks are competing for the first 3 years. For example, a flat rate of 2.5% p.a. for the first 3 years, or a progressive scheme which may offer 1.72% p.a. for the first year, 2.2% for the second year, and MRR-2 for the third year onward. In the case of a progressive scheme, it means the effective rates for the third year onward can vary between some 4% to 7%, depending on the effective rate in a particular period.

A common home loan condition prohibits account closing or refinancing in the first three years. Otherwise, home buyers will be subject to a penalty fee charged by the lending bank. After the first three years home buyers are encouraged to seek refinancing to avoid higher interest rates. For example, for a loan amount of 4.6 million baht with interest at 4.2% p.a. and monthly installment amounts of 30,000 baht, the principal amount paid per installment is only 12,000 baht, whereas 18,000 baht is accounted for interest. Knowledgeable consumers with an understanding of finance and financial planning prefer refinancing when their home loan contract with their current bank reaches its first 3-year lifespan.

Banks offer competitive refinancing promotions, including flat interest rates of 2.5% for the first three years or a progressive interest scheme with 1.72% p.a. for the first year, 2.2% for the second year, and MRR-1.75 for the third year onward. Some banks may offer extra deals like a package that includes a mortgage fee waiver and credit-shield life insurance. Mortgage registration fees with the Department of Land are rather high at a rate of 1% of the approved loan amount. If your approved loan amount is 4.5 million baht, you would have to pay as much as 45,000 baht in mortgage registration fees. In the event that a bank offers to bear this cost, a home loan condition usually requires that borrowers keep their loan with the bank for at least 5 years before they can refinance or close the home loan account. So, you have to carefully consider whether or not the mortgage fee waiver condition is worthwhile

Apart from the mortgage registration fee, there are collateral valuation fees, which range between some 3,000 – 5,000 baht. Some banks may also offer a waiver for this as well. Furthermore, there is a stamp duty of 0.05% of the approved loan amount and fire insurance premiums. For an approved loan amount of 4.5 million baht, for example, fire insurance premiums work out to around 2,000 baht per year. Banks usually require borrowers to arrange fire insurance for at least 3 years to cover the loan contract period. However, banks frequently recommend long-term coverage like 6 years for lower premiums – the longer the insurance period, the lower the premiums. Borrowers may continue existing fire insurance, in the event that the validity period of existing fire insurance with the previous bank covers the refinancing contract period and the sum insured is not lower than the new collateral valuation by the refinancing bank. In that case, the previous bank will endorse the insurance policy, specifying the refinancing bank as the insurance beneficiary. Borrowers will need to arrange new fire insurance in the event that the validity period of existing fire insurance with the previous bank covers the refinancing contract period but the sum insured is lower than the new collateral valuation by the refinancing bank.

You need to carefully consider offers when considering whether or not to refinance your home loan or keep it with your current bank. Is a lower interest rate worth the refinancing costs? Compare existing interest costs with all the refinancing costs – mortgage transfer and registration fees, collateral valuation fees, stamp duty, and fire insurance premiums. If it’s worthwhile, just go ahead as you can save on interest costs and close your loan account sooner. In the case of a progressive interest scheme, it is recommended that you repay as much as you can in the first year whereby interest is at the lowest rate. This is because the repayment sum during this period is mostly the principal amount rather than interest, which will help ease your debt burden faster.

Once you have decided to refinance your home loan, it is recommended that you contact a new bank one month in advance of the due date of the first 3-year period with the existing bank to avoid paying interest in the last month to the existing bank and move to the new bank as soon as possible. If you are looking for refinancing deals to help you save interest costs and ease your debt burden more quickly, please contact SCB or visit https://www.scb.co.th/th/personal-banking/loans/home-loans/refinance-loan/apply-form.html for more information