The "Floating Interest Rate" Trap - Why You Need the Stress Test Feature?
Most banks offer promotional interest rates (6-8%) only for the first 1-2 years. After that, the interest rate will "float" according to the market (usually Deposit rate + Margin 3-4%).
This means that after the promotional period, your monthly payment can increase significantly. If you only look at the first month's payment when deciding to borrow, you may fall into financial difficulty when interest rates rise.
💡 Don't just look at the first month's payment. Enable the "Stress Test (Worst Case Scenario)" feature on VNIT's tool to see if your income is sufficient to pay when the floating interest rate rises to 12-14%.
How to Distinguish: Interest on Original Principal vs. Declining Balance
There are two common methods for calculating loan interest. Understanding the difference helps you make smarter borrowing decisions:
Flat Rate (Original Principal)
Interest is calculated evenly on the original loan amount throughout the loan term. This method is commonly used for unsecured loans and consumer loans. Total interest paid is higher compared to declining balance.
Declining Balance - Method used by VNIT
Interest decreases as the remaining principal decreases. Principal is paid evenly monthly, interest is calculated on the actual remaining balance. This is the standard calculation method for most home/car loans today, more beneficial for borrowers later as total interest paid is lower.
Hidden Fees When Borrowing to Buy a House You Need to Know
In addition to the loan amount and interest rate, when borrowing to buy a house you also have to pay many other fees. These are "hidden" costs that many people don't consider when planning their finances:
- Property appraisal fee: Banks need to appraise the property value to ensure the asset is valuable enough to mortgage. This cost is usually from 1-3 million VND, depending on the property value and bank.
- Loan insurance / Fire insurance: Mandatory or encouraged to purchase to get better interest rates. Cost is usually 1-3% of loan value, can be paid once or annually. This is a large fee that many people don't consider.
- Notarization & Title transfer fee: About 0.1 - 0.5% of contract value. Includes notarization fee for purchase contract, title transfer fee, and other legal procedures.
💡 Enter these numbers into the "Other Costs" section in VNIT's tool to calculate the actual amount you need to prepare in addition to your matching capital. This helps you avoid being "shocked" when you discover the actual total cost is much higher than initially estimated.
Frequently Asked Questions (FAQ)
💡How is the prepayment penalty fee calculated for home loans?
Prepayment penalty fees usually range from 1-3% of the prepayment amount in the first 3-5 years. After this period, most banks will waive the penalty. You can use the "Pre-payment" feature in VNIT's tool to accurately calculate the amount saved compared to the penalty fee to be paid.
💡What is a safe home loan ratio?
According to financial experts, the total monthly installment (principal + interest) should not exceed 30-40% of the family's net income. If it exceeds 50%, you will fall into a high financial risk zone. VNIT's tool has a "Financial Health" bar to help you assess the safety level based on actual income.
💡Should I choose fixed or floating interest rate?
Fixed interest rate helps you be financially proactive but is usually higher initially. Floating interest rate is low at first but has high risk of increase later. Use VNIT's "Stress Test" feature to see if you have sufficient capacity to pay if the floating interest rate rises to 12-14%.