What Is Home Refinancing in Thailand?
Property refinancing (refinance) in Thailand is the process of replacing an old home loan with a new one. In the Land of Smiles, banks typically don’t allow this until at least 3 years have passed on the life of the mortgage.
The home refinancing process normally comes with several fees and insurance payments that can make the decision less appealing for some than others. However, the application also allows for a change in interest rates, which may reduce the total cost of the loan depending on the situation.
After the home refinancing has been approved and the contract has been signed, you will have to pay monthly installments to the new financial institution instead of the old one, assuming you’ve refinanced with a different bank.
For a refinancing example, consider a home loan for a property worth 3 million baht with no down payment, a loan term of 30 years (360 terms), and an interest rate of 4.5%. The total payment at the end of the loan would be 5,472,144, or 15,200 per month.
Refinancing the loan at 3.5% after 3 years would result in a 5,053,200 baht payment (including the payments made in the first 3 years), or 13,900 baht per month over 27 years. Assuming the refinancing costs aren’t overly expensive, refinancing may end in more savings overall.
What is the Alternative to Home Refinancing?
An alternative to home refinancing is home loan retention, meaning a reduction in interest rates agreed on by the bank that issued the original home loan. Depending on the rates offered, this can be both financially beneficial and also cut down on the paperwork necessary for a new mortgage application.
Typically, the mortgage retention application process does not involve re-submitting things like identification documents, income statements, and collateral. The processing time is mostly devoted to checking the borrower’s past payment history and most of the fees outside of the 0.01% mortgage registration fee are also waived.
What Are the Reasons To Refinance Your Real Estate?
The 5 main reasons for refinancing your real estate are:
- A change in the macroeconomic environment such as lower interest rates than the ones that you agreed to in the original loan. This can lower the overall interest payments in the long run if your original rates were high.
- Taking out the new loan in order to pay for home renovations or finance other projects.
- A desire to change from variable to fixed rate mortgages or vice versa. One may have seemed advantageous when applying for the original loan, but that can change along with the general macro monetary environment.
- Lengthening the loan term. This can lower the cost of monthly installments and may be an option to consider if you’re several years into a mortgage and are having difficulties completing payments. The downside is that the loan’s overall cost will increase.
- Improvement of credit rating. If you took out the original loan under a poor credit score, improving your personal finance and seeing an improvement in that score may be a reason to refinance as it can lead to more forgiving rates.
What Types of Collateral Can Be Used When Refinancing?
The 7 main types of collateral that can be used when refinancing a home loan are:
- Houses
- Townhouses
- Commercial buildings
- Condominiums
- Vacant Land
- House remodels
- Loan refinancing from other institutions
What Are the Advantages of Refinancing Your Current Mortgage?
The main advantages of refinancing your current mortgage are as follows:
- Provides the benefit of a lower interest rate. This can ultimately save you money in the long run as long as the savings outweigh the re-application costs.
- Creates a shorter term for paying the loan. This is among the criteria for the ideal home refinance, especially for those with growing capital and whose current contract doesn’t allow for larger payments until later.
- Lower monthly payments. On the other hand, if you’re struggling to complete payments, restructuring your loan to lower monthly payments can be a necessary short-term option.
- Allows you to cash out equity for other purposes such as additions to your home, remodeling, or even investments unrelated to your current property.
Is There a Downside To Refinancing Your Home?
Yes, there may be a downside to refinancing your home such as the fees associated with refinancing not being worth the lower rates.
While there has been a reduction of mortgage fees by the Thai government, it still represents 0.01% of the total loan value. Other fees associated with mortgage applications in The Kingdom include:
- Fire insurance premiums of roughly 2,000 baht per year, normally with 3-6 years of coverage recommended
- Collateral valuation fees around 3-5,000 baht
- Stamp duty of 0.05% of mortgage principle
- Application fees may vary depending on the financial institution.
There’s also the danger of ending up in further debt if you’re refinancing as a way to pay off other investments or are using it as a crutch to pay current high interest debt.
Finally, refinancing a home loan can impact your credit score as a new inquiry is opened up into your credit history.
What Documents Are Required for a Home Refinance Application?
The 3 main document categories that are required for a home refinance application are those that describe personal information, income, and collateral details. The key personal information documents required are copies of:
- National ID card
- House registration book (Tabien Baan)
- Change of surname certificate, if applicable
- Spouse’s ID and house registration book, if applicable
- Marriage or divorce certificate, if applicable
- Death and marriage certificate in the case of widows
The key income documents required are:
- For those with regular income: 3 months of salary slips or employment certificates, copy of bank account statements for past 6 months, withholding tax certificate (50 bis) in some cases
- For those running a private business: Copy of trade registration certificate, copy of shareholder list including all borrowers, copy of bank statements for 12 months for both the individual and business, and a copy of either a P.P.30 (value added tax return) or P.N.D.50 form (income tax return for companies and juristic persons).
The key collateral documents required are copies of:
- Ownership-proving certificates such as a land title deed
- Purchase and sale agreement
- Existing mortgage contract
- Loan contract with original financial institution
- Loan installment payment receipts for past 12 months
Are there employment qualifications for a home loan refinancing application?
Yes, there are employment qualifications for a home loan refinancing application for the 3 broad working categories of self-employment, company or government employment, and business ownership.
Self-employed (freelance) workers must meet the following criteria:
- Monthly income of at least 15,000 baht
- 1 year of experience in the profession
- Between 20 and 65 years of age
- Thai national
Company or government employees must meet the following criteria:
- Monthly income of at least 15,000 baht
- At least 6 months of work history
- Between 20 and 65 years of age
- Thai national
Business owners must meet the following criteria:
- Monthly income of at least 50,000 baht
- Continuing the business for at least 2 years
- Between 20 and 65 years of age
- Thai national
The Best Banks for Home Refinancing Loans in 2024
The 5 best commercial banks in Thailand for home refinancing loans in 2024 are:
- Government Housing Bank with a maximum loan of 2.5 million baht per person, per collateral and a lowest interest rate average of 2.98%.
- Land and Houses Bank with a max loan equal to the full appraised property value and interest of 3.14%.
- Thanachart Bank with a max loan of 50 million baht and interest of 3.39%.
- Krungthai Bank with a max loan equal to the full property appraisal and interest of 3.4%.
- Siam Commercial Bank with a max loan not exceeding the original loan amount and interest of 3.42%.
6 Steps for Refinancing Your Home
Refinancing your home can be done in X steps, including deciding on a bank, preparing documents, and finally drawing a new home loan contract.
1. Check the Current Home Loan Contract
You must check the current home loan contract to understand when refinancing is possible. In most cases, this will be after you’ve made 3 years’ worth of payments on the current mortgage. The contract will typically detail applicable penalties for entering into a new loan prior to that date.
2. Check Outstanding Debt Information
Check outstanding debt information to determine the remaining balance on your home loan. Use this information to look into rates provided by other banks and the institution your existing loan is under.
3. Compare Other Banks to Your Current One and Decide Which Is Best
Compare other banks to your current one and decide which is best based on the total cost of refinancing measured against the savings on interest payments. Your existing bank may offer a retention program to lower your interest rate, so do your research and compare what other banks offer to what you would get from staying in your current situation.
4. Budget for Operating Expenses
Budget for operating expenses and ensure that they result in savings when compared to your original loan. These expenses include a mortgage registration fee of 0.01% of the loan amount, stamp duty of 0.05%, fire insurance, and potential bank and property appraisal fees.
5. Get Your Documents Ready and Apply
Get your documents ready and apply once you’ve decided on a bank for refinancing. The main documents required for refinancing a loan include personal identification copies, employment and income statements, and collateral details.
6. Complete a Mortgage Contract and Register It at the Land Department
Completing a mortgage contract and registering it at the Land Department is the final step in the refinancing process. At the Land Department, you’ll need to pay a new home loan registration fee, which is 0.01% of the total loan principle in 2024. You’ll also need to pay a stamp duty of 0.05% of the approved loan amount.
Looking for more real estate advice that can help you get the most out of your investments, just like home refinancing? Contact PropertySights Real Estate today and chat with our seasoned experts.
English