When home loan interest rates are low, there are some who advise not to pay off a home loan early. If the money is cheap, why pay it off? In contract, there are others who argue that paying down debt is always a good idea and it allows you to use the money to pursue other opportunities, perhaps with higher returns. Masii.com talked to the experts and we’ve got the following to share with you:
Key things to consider
Do you have any other debts at higher interest rates?
Credit cards, auto loans, personal loans and other debts often carry much higher interest rates than a home mortgage. For example, the average credit card APR in Thailand last month was 20.2%, versus an average mortgage rate of closer to 3%. If you owe money to a credit card institution, or any other form of debt at a higher interest rate, you should pay off those debts first. A 10,000 THB credit card bill can turn into 100,000+ THB in just about 1 year. Manage high interest debts carefully and pay them off in order of highest to lowest interest rate.
Are you putting money into a retirement plan?
Many Thai employers offer generous retirement pension savings plans. Some employers will match your contribution 100% up to a certain amount, other employers allow unlimited contributions with a fixed match amount on top of a guaranteed interest rate.
The bottom line is if you take 5 million baht and place in your retirement savings account, can you earn more or less total annual return than your home loan annual percentage rate? If you can earn more (or significantly more), now might not be the right time to pay off your home loan.
Can your family cope if something happens to you?
If something should happen to you, would your family have enough money to sustain themselves? It’s important to consider whether or not you could maintain enough liquidity (cash) to take care of the family after paying off the home loan. Remember, the loan is typically paid off over a long period of time – 10 to 30 years. These smaller payments could be much easier to manage than the converse: If your family needs fast liquidity (cash) and needs to sell the house for a reduced price.
Will you be charged for overpaying your mortgage?
Here at Masii.com we advise you to look very carefully at all the terms of your home loan before signing. One thing to look out for is penalties for overpaying your home loan. While many banks do not penalize you for paying off the full balance early, some banks will charge penalties OR only allow overpayment by 10% per month. Make the calculation for yourself based on your existing loan, and know all the facts before you jump into it.
