What you need to know after “low” interest rate ads when applying for a home loan to avoid “falling into a debt trap with no way out”
The desire to “have a house with a door” is present everywhere, crept into each dream of the “adult society” with many pressures imposed by society.
Buy house – so it’s always a topic of great discussion. Along with it, of course, the first dilemma is… WHERE IS THE MONEY TO buy a house? And is it a good way to take a bank loan?
In fact, home interest rates are currently at their lowest level in 15 years. However, is the low interest rate enough for you to make a home loan decision and what to consider? The solution will be in today’s post of Speaker, Ambassador of the community foundation of women in finance and career – Mina Chung.
Many banks have launched programs to support young families who can own their first home at an optimal cost, sometimes with an interest rate of only 4-8%. But, that’s not all! The most important thing that we should look for is complete information to have an overall picture, especially for buying a home that is a large asset and the payment process lasts more than ten years.
Buy a house when you don’t have enough capital
Currently, to own a house in the city. Ho Chi Minh City is not easy.
House prices in inner city districts. Ho Chi Minh City are all from 70 million VND/m2 or more, in central districts, house prices are up to 100-200 million VND/m2. To buy a house in the city, young families need to spend from 4 billion VND. This number is very high for a young family with an average income.
If the price is competitive, the apartment purchase will have a better price and will be supported by many cooperative loan policies between the bank and the investor.
In my opinion, the calculation of financial ability and payment is very important, no matter how low the interest rate. If the husband and wife’s total income is VND 50 million/month, choose the solution to pay rent/buy your house no more than 30-40% of your income (~ VND 20 million).
In which, this cost includes both principal and interest to be paid to the bank when you decide to buy. At the same time, you only see ads with “fixed” interest rates, so please find out all the information, especially with the floating interest rate of the bank when you take a long-term loan.
What is a fixed interest rate when buying a home?
I assume a specific example, friend A’s family has saved a capital of 500 million dong, the family’s monthly income is 50 million and plans to buy an apartment.
The price of the apartment is 2 billion VND, minus 500 million VND that friend A already has, friend A borrows another 1.5 billion from the bank to buy the apartment (depending on the bank that appraises your financial ability, the number of 1.5 billion subject to change)
The bank has agreed to lend at a low interest rate of 6%/year fixed for the first 12 months, your loan term is 10 years. Thus, friend A calculates the cost to pay the bank loan as follows:
+ Principal: 1.5 billion/ 120 months = 12.5 million/month
+ First year fixed interest: (1.5 billion x 6%)/12 months = 7.5 million/month
+ Total monthly expenses in the first year: 12.5 million + 7.5 million = 20 million/month
With this cost, A’s family can afford it if the income level stays the same as above. However, this is the ideal number for the first year.
After the 2nd period, when the fixed interest period has expired, your family A will pay the loan at a floating interest rate for the remaining 9 years.
Floating interest rates from the second year are usually calculated based on 12-13 months’ savings (the highest interest rate) and plus a margin (borrowers must carefully look at the loan contract and debt receipt).
The formula for calculating loan interest:
Lending interest rate = Interest margin + 12 or 13 month deposit interest rate
Currently, the bank’s 12-13-month savings interest rate falls to 6-7%, the interest margin ranges from 3-4%/year. These indicators are announced by banks and borrowers need to know each year to ensure their ability to pay.
After the end of the first year, the principal balance of family A is 1.35 billion VND with a floating interest rate in the second year, predicted at 10%/year. The monthly cost has changed:
+ Interest at the new interest rate: (Principal balance decreases gradually after year 1 x 10%)/12 months = 11.25 million/month.
+ Total monthly expenses of year 2: 12.5 million + 11.25 million = 23.75 million/month.
If you have to pay the bank 23.75 million/month, the expenses in friend A’s family must be cut down significantly. Now, the number can be more than 40% of the family’s ability to pay.
Based on the estimate table, you can see that the true total value of your family’s apartment A is 2 billion 699 (2 billion 199 + 500 million contributed capital).
If you are buying a home for investment, should you consider selling the apartment for more than this price in the future? Otherwise, the investment will not work.
What to keep in mind when deciding on a loan?
From the example of friend A’s family, I can offer a few tips for you to consider when deciding whether to continue renting or taking out a home loan:
– Do not borrow more than 50% of the value of the housewhich means you need to accumulate savings to have enough 40-50% to contribute capital to buy a house.
– Continue to save/invest for more optimal capital, Priority is given to minimizing the loan period to reduce loan interest costs.
– Take advantage of the initial fixed interest rate to try to pay the most principal maybe but also consider your bank’s policy. Some banks will have a penalty fee for early repayment of about 2% on the remaining balance.
– Before you buy, you can Try renting a house for a few weeks or a few months to see if the house is suitable and true to what is advertised (only suitable for places where apartments have been delivered).
– Some Fintech/Proptech (property technology) real estate technology applications with lease-to-purchase contracts can be an option for those who can’t decide whether to buy or rent. Each month, you both pay the rental fee and contribute to the purchase of a house for 10-20 years optionally. Or other platforms that allow capital contribution to buy real estate with other investors with a capital of only a few tens of millions per share.
In fact, home interest rates are now at their lowest level in 15 years. However, low interest rates are not enough to decide on a home loan, you can take advantage of these benefits to repay the loan optimally by calculating your financial ability. When considering options, you can also create a spreadsheet like the example of friend A’s family to anticipate possible financial situations.
Borrowing is already a problem that is not unique to anyone when starting to consider buying a home, but if you learn carefully the information can still help you avoid things that don’t happen.
at Blogtuan.info – Source: cafebiz.vn – Read the original article here
