Promo rate to floating rate in Vietnam: what you pay after

When the promotional period ends, the bank recalculates your monthly payment on the remaining balance over the remaining months, at the floating rate. The floating rate is usually higher than the promotional rate (lãi suất ưu đãi), so the first month after the promotion is often where the payment jumps most. How far it jumps depends on three numbers in the contract: the promotional rate, how many months it lasts, and the margin.

If you know fixed-then-variable loans from elsewhere, this is the same idea. What differs is how the later rate is set.

Example: 2 billion VND over 20 years

Say you borrow 2 billion VND over 20 years as an annuity, at a promotional rate of 5.5% a year for the first 12 months, then a floating rate (lãi suất thả nổi) of 10.5% a year. Both rates are only for illustration.

• For the first 12 months you pay 13,757,746 VND a month.
• From month 13 you pay 19,709,757 VND, which is 5,952,011 VND more, a rise of about 43%.
• If the floating rate is 11.5%, the payment from month 13 is 21,013,439 VND. At 12.5% it is 22,349,258 VND.

With declining balance, month 13 costs 24,958,333 VND, 7,878,472 VND more than month 12.

Enter your own loan in the mortgage calculator to see these numbers with the rates and term in your contract.

The promotional period

The promotional rate is fixed for an opening period, anywhere from a few months to a few years. During that time the monthly payment stays the same (with an annuity) or falls with the balance (with declining balance).

Advertisements quote the promotional rate, but most of the interest you pay falls in the later period. Two loans with the same promotional rate can cost very different amounts if one promotion lasts 6 months and the other 24.

How the floating rate is set

When the promotion ends, the rate is reset by the formula in the contract: the bank’s base rate plus a fixed margin. If the contract says “base rate + 3.5 percentage points”, the margin is 3.5.

The bank reviews its base rate from time to time, while the margin stays as written. Nobody can tell you today what the rate will be after the promotion, but you can see which part is fixed and which part moves. The calculator lets you add 1 or 2 percentage points to the floating rate to see what a rate rise would do.

What to ask before you sign

• How many months does the promotional rate last?
• What is the base rate today, and how often is it reviewed?
• What is the margin, in percentage points?
• If you want to prepay or move the loan to another bank when the promotion ends, what is the prepayment penalty? Each bank sets its own in the contract. The calculator starts from a default based on market convention, which you can change 1.