Fourteen questions to ask before you sign
A loan officer is not your adversary. They are answering the questions they are asked, in a process designed to move to signature. Change the questions and the conversation changes, usually in your favour, and occasionally by a hundred million dong.
Ask these before the final appointment, by email, so the answers are in writing. An answer you have on paper is an answer you can hold someone to.
About the rate
- How many months does the promotional rate run, and does the clock start at signature or at first disbursement?
On an off-plan purchase these can be a year apart, and the promotion may largely expire before the balance is large.
Good answer: Twelve months from first disbursement, stated in clause 3.1.
Warning sign: Twelve months, roughly, from when everything is done. - What is the margin, as a number of percentage points?
The margin prices nineteen of the twenty years and is the only part of the floating rate the bank commits to.
Good answer: 3.0 percentage points, fixed for the term, written into the credit agreement.
Warning sign: A margin determined by the bank in accordance with its policies from time to time. - Exactly which published rate is the base rate, and where can I look it up?
A base rate you can observe is a base rate that can be argued about. One defined by an internal formula is not.
Good answer: The listed 13 month personal deposit rate, published on the bank’s rate board.
Warning sign: Our cost of funds plus an operating adjustment. - How often does the rate reset, and how much notice do I get?
It determines how fast a market move reaches your instalment and whether you can plan for it.
Good answer: Every six months, with thirty days’ written notice of the new instalment.
Warning sign: Periodically, as notified. - Is there any cap on how much the rate can rise at a single reset, or over the term?
Caps exist on a few products and are never volunteered. If the contract is silent, there is no cap.
Good answer: Yes, two percentage points at any single reset, clause 3.4.
Warning sign: The rate follows the market. - What floating rate are you charging right now to borrowers on this product whose promotion ended last month?
It is the best available evidence of what you will actually pay in a year, and the branch knows it.
Good answer: A specific number.
Warning sign: That depends on many factors.
About the structure
- Is interest calculated on the outstanding balance or on the original loan amount?
A flat rate is worth roughly 1.8 times itself as a reducing-balance rate on a short loan, and about 1.5 times over twenty years. Nothing else matters if this answer is wrong.
Good answer: On the reducing balance.
Warning sign: On the loan amount, which makes the instalment easier to understand. - Please send me the full amortisation schedule as a file, for the whole term, at the current floating rate after the promotion.
It is the one document that cannot be ambiguous, and any bank can produce it in minutes.
Good answer: A spreadsheet arrives.
Warning sign: We can show you the first twelve months. - If there is a grace period, is the term extended by it, or is the capital compressed into fewer months?
Compression is the norm and makes the payment after the grace period larger than most people expect.
Good answer: The term is extended, so capital is still repaid over 240 months.
Warning sign: The term is the same.
About the costs
- What is the total of everything payable at or before drawdown, as one number?
Upfront money is the most expensive money in the contract. A percentage taken at drawdown costs roughly a fifth of itself in effective rate points over twenty years.
Good answer: An itemised list adding to a stated total.
Warning sign: The usual fees, they are small. - What is the interest rate if I decline the insurance, and what is it if I accept? Please put both on the offer sheet.
This converts a vague obligation into a priced choice, which is the only form in which it can be evaluated.
Good answer: Two rates in writing.
Warning sign: The rate is only available with the programme. - What are the early repayment fees for each of the first five contract years, and do they apply to partial overpayments?
Many contracts treat any payment above the scheduled instalment as early repayment and charge the tier on it.
Good answer: A tier table, and a stated annual free allowance.
Warning sign: There is a small fee if you settle early. - If I settle early, do I have to repay the discounted promotional interest? For how many months from disbursement?
The clawback is frequently larger than the penalty and runs for longer than the promotion. It decides when you can leave.
Good answer: Yes, for thirty-six months from first disbursement, calculated on the reducing balance.
Warning sign: There may be a recovery of preferential interest. - Are the exit charges waived if I refinance with you rather than another bank?
Many banks will, and almost none mention it. It changes the entire refinancing calculation.
Good answer: Yes, on the same product family.
Warning sign: That would be assessed at the time.
What to do with the answers
Put them into the loan inspector and read two outputs. The effective rate tells you whether this offer is cheaper than the other one you are holding. The required payment in the month after the promotion ends, stress tested two points higher, tells you whether you can live with it. Those two numbers, from two banks, is a decision. A table of promotional rates is not.
One question for yourself
After the deposit is paid and every fee at drawdown has cleared, how many months of the peak instalment do you still have in cash? If the answer is fewer than six, the loan is too large or the purchase is too early, whatever the approval says. The reasoning is in how much can you actually borrow.