Vietnam home loan prepayment penalty: what to ask first

Plenty of borrowers plan to pay down the loan with a bonus, or to move it to another bank once the promotional rate ends. Both count as early repayment, and Vietnamese loan contracts usually charge a prepayment penalty (phí phạt trả trước hạn) for it.

How the penalty is charged

The penalty is a percentage of the amount you prepay. Prepay 200 million VND at 2% and the penalty is 4 million VND.

The rate usually falls with the number of years you have held the loan. The calculator’s default follows market convention: 3% in the first year, 2% in the second, 1% in the third and 0% from the fourth 1. That is not a legal rate. Your bank may charge something else, so enter the figure in your contract.

What prepaying gets you

A prepayment cuts the balance at once. You can keep the term and pay less each month, or keep the payment and finish sooner. Keeping the payment usually saves more interest.

In the mortgage calculator you enter the month, the amount and the penalty rate, and it shows the interest you save after the penalty.

Questions for the bank

• What is the penalty in each year, and is it charged on the amount prepaid or on the balance?
• Can you prepay a small amount each year without a penalty?
• Does the penalty apply if you sell the home and close the loan?
• After a prepayment, does the bank lower the monthly payment or shorten the term?

When the promotion ends

The first month after the promotion is when many borrowers think about switching banks. If the promotion is shorter than the penalty period, you may still owe a penalty when you switch. Weigh the penalty against the interest you would save at the other bank before you decide.