Is it true to pay off your mortgage early without the prepayment penalty?

Many people who bought houses might still wonder if you are able pay off your mortgage before 3 years, are there any penalties for paying off early?

You won’t have to pay for the prepayment penalty if you pay the whole mortgage off in cash within 3 years. However, it is a good idea to check the conditions of the contract from each bank first. If you attempt to refinance your mortgage loan with other banks, your loan will come with a prepayment penalty. Most lenders that use prepayment penalties usually charge 3 percent of the remaining mortgage loan, while some lenders ‘charges are calculated based on the entire amount of mortgage loan according to loan agreement.

However, this will adhere to the rules stipulated by the BOT in respect of penalties regulations which states that:

In case you opt for a home loan with a floating interest rate, and want to redeem the mortgage before the end of a specified date, your loans will come with a prepayment penalty only if you re-finance your property with other banks.

(Notification of the Bank of Thailand No. FPG. 80/2551 RE: Regulation on practices regarding interests, discounts, service charges, and penalties for commercial banks)

In case of a fixed interest rate period, the notification states that:

In case you opt for a home loan with a fixed interest rate and want to redeem the mortgage before the end of a specified date, either you want to re-finance the property, or you want to shift to floating interest rate, all of these will attract prepayment penalties.

However, some banks may impose other conditions, especially if you select a fixed interest rate period or special interest rate such as no mortgage redemption sooner than the agreed-upon date or no extra payment accepted at specific times.

Home loan that offers you special benefits or low interest rates is likely to have high home loan fees and charges and strict rules such as redemption period may be extended from 3 years to 4 years.

However, regulation on practices regarding interests, discounts, service charges, and penalties for commercial banks is quite clear as it must be based on the notification of the Bank of Thailand. The borrower must read the contract thoroughly so it won’t become a hassle later.

Now let’s take a look at fees / charges and penalties related to home loans

  • Ceiling Rate
  • Maximum Default Interest Rate
  • Collateral Appraisal Expenses by internal parties
  • Collateral Appraisal Expenses by external parties
  • Prepayment penalties for early repayment within 3 years from contract date in case of re-finance
  • Debt Collection Expenses

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