Happy new year! Here is wishing a healthy and prosperous year to all readers.
Those who have lived in Pattaya for a while may have grown accustomed to how this party city rocks, particularly during the Christmas and new year season. For those new to the scene and, given you are reading this, congratulations on making it through your first “fun city” seasonal offerings.
As we reset our annual financial clocks, it is a good time to take stock of personal finances and income flows/expenditures. A good budget from the start of the year and making relevant savings on needless expenditures can help set up 2020 for a profitable and affordable one, which, hopefully, of course, will lead to more income being available during the 2021 new year party season!
Buying a property is generally one of, if not the, biggest purchase one makes in a lifetime. Often mortgage finance is required and this is one of the biggest borrowings many will encounter. Such borrowings can become a burden if you overstretch yourself and don’t fully consider the longer-term impacts of a monthly debt obligation to repay any loan.
The good thing about reassessing an existing mortgage is that sometimes, it is possible to reduce the obligations each month by extending for a longer-term.
Let’s take a typical Bt5,000,000 loan on a Bt10,000,000 property which, when the figure was borrowed, the idea was it “must” be paid off as soon as possible, no matter how hard it would be to afford the installments each month. Say also work at the time was going well.
So, let’s say the borrower decided on a 10-year loan on full repayment. A typical installment for a 40-year-old male would be Bt66,300 per month. Now, say we are six years into the loan and have around Bt2,300,000 outstanding, but are still paying Bt66,300 per month. For quite some time, the baht has been increasing in strength against a number of currencies and if your sole source of income to repay a loan was from overseas, perhaps the installment has been hard to afford each month or getting more difficult.
A quick review of the existing contract and it may be concluded that it is possible to refinance the existing mortgage and change the terms. If the idea is to lower installments, then for the example above, it could be lowered to just Bt24,500 per month! By simply paying off the old loan contract with a new one and going with a new 10-year term against Bt2,300,000 and introducing a balloon payment term the monthly debt obligation has been drastically reduced by more than half.
Another idea of refinancing an existing contract could perhaps be to free-up some capital to invest in more property. Let’s use the above example again and consider the individual that had bought a property in Thailand and would like to try to increase baht income.
Initially, the loan was Bt5,000,000 and now is standing at Bt2,300,000 which means, THB 2,700,000 is available to spend on other properties. i.e. perhaps being at the start of a new year, bargains may be available on the open property market to snap up a cheap offering which could generate some baht rental income. If we refinance the loan on a new contract (pay off the old, start afresh), the THB 2,700,000 could be used to buy a second property which is then rented out for possibly more than the mortgage payment! It is even possible on this example to still lower the installments by making a Bt5,000,000 loan on balloon terms, the installment comes down from the existing Bt66,300 to just Bt53,300 so still saving an expenditure each month whilst at the same time generating new passive rental income and an increased property portfolio.
For those who are a little more enthusiastic about “investments” and perhaps a little more of a “risk” taker, my article featured in this magazine for last February featured a suggestion to pick up some cryptocurrency (Bitcoin) using a refinance on Thailand property. The price for one Bitcoin back then was for around US$3,500. During the year prices went up to around US$14,000.
If, for example, the client above used Bt2,700,000 to invest in Bitcoin and sold at the top, they would not only have enough to pay off the original Bt5,000,000 loan completely, they would have a decent amount of cash in the bank account also. They literally sold their Bt2,700,000 for Bt10,800,000 within the space of 12 months!! Now, we are just beginning 2020 and while the “charts” are not the same or obvious as back at the start of 2019, one could argue that we are in a possible similar scenario as 2017.
May 2020 is expected to be the next Bitcoin halving. This is when a block reward is cut in half thus reducing the number of new Bitcoins produced by 50%! We have so far seen two halvings take place and on both occasions after the halving, Bitcoin “went on a run” to hit new all-time highs. For those who are unfamiliar with Bitcoin. Bitcoin operates on a model of deflation. Fewer Bitcoins will be made over time and eventually, the supply will stop when the last Bitcoin is “mined” in the year 2140.
Bitcoin supply is limited to 21 million units by its built-in algorithm, no more than that amount can ever exist. US$, Bt, GBP, and other fiat currencies, for example, use an inflationary model. Inflation is a model where central banks can print extra units of currency at will.
At the time of writing, we are sitting on a Bitcoin price of around US$6,900. The last all-time high stopped just short of US$20,000. Past price is not a prediction of the future, however. It is difficult to not take into account these performances when considering possible investments. Mortgaging that Brt2,700,000 from our working example to invest all into Bitcoin is one of those “risk” choice investments, though often with investments, the higher the risk, the higher the reward.
If Bitcoin does hit a new all-time high after the halving as per the past two historical events, that Bt2,700,000 investment could be expected to be sold for at least Bt7,800,000 sometime over the next one-two years. Certainly a return on investment not to be ignored! Whether we are at a present low, however, is yet to be determined!
At MBK Guarantee we offer mortgage finance to both Thais and Foreigners on Thailand-based collateral. Predominantly equity release based on foreigners and both purchases or equity release for Thais, interest rates range from 8.4% up to around 12%. We offer flexible terms to choose either full repayment or up to 50% balloon payment and offer an ability to repay the loan at any time. Early payment penalties of 2% apply within the first three years only. Terms to 10 years OR age 70, whichever comes sooner. A map of all condominiums around the Kingdom is available which provides an indicative loan size available for relatively easy baht finance. Maximum 60% loan to value dependent on the floor and view.
For further information on how to “Finance Property, Land & Condos in Thailand”, or a web-link to the “Thailand Condo Finance Map” which shows pre-approved condominium projects for finance, please feel free to email [email protected] OR, call 66 (0) 81278 5382 OR, Line ID stuartmaxwellfoulkes, I will be happy to assist. To speak with a native Chinese national, contact Rose on 66 (0) 95648 2913 or WeChat: rose215620 or email [email protected]