Guide to home financing

BUYING a home is one of the most important investments you can ever make. But it can be expensive too. Home prices in the Philippines can go as high as millions. This is why most Filipinos turn to loans to be able to fund and acquire their dream homes.

Borrowing money to buy a house can be a very complicated process. You have to know the different loans for financing a home. The types of housing loans in the Philippines vary according to loan purpose, financing scheme and interest rates.

Filipino homebuyers have a wide range of choices when it comes to financing their dream home. Real estate developers, banks and government agencies offer housing loans with different terms, amortizations, interest rates and requirements.

Bank loans

Homebuyers can borrow at least P300,000 up to 80 percent of the property value from banks such as BDO and BPI that provide housing loans in the Philippines. Bank loans require a collateral, which is the home to be purchased.

Pros of bank loans:

Lower interest rates. Stiff competition among banks drives the housing loan interest rates down. The bank loan rates range from 5.25 to 11 percent, making them lower than in-house financing and even government loan interest rates.

Longer loan terms. You can choose to repay your housing loan for a maximum of 20 to 25 years.

Lower monthly installments. Repaying a bank loan is easier on the budget than in-house financing because of the lower rates and longer repayment terms.

Cons of bank loans:

Stricter requirements. To qualify for a bank loan, borrowers have to meet stringent requirements that vary based on the lender, loan purpose, type of property to be purchased and employment status. Also, banks conduct background and credit checks to determine a loan applicant’s ability to repay a loan.

More documents to submit. Loan applications can be tedious because you need to submit valid IDs, latest pay slips, income tax returns, Title Certificate of Transfer and vicinity map and lot plan of the property, among many others.

Miscellaneous fees. You may have to pay a handling fee, appraisal fee, documentary stamp tax, notarial fee and registration fee.

Ideal for:

Borrowers with good credit history and a stable, high-paying job

Homebuyers who want flexibility in terms of loan repayment period, interest rates and monthly amortizations

Government loans

The Philippine government provides affordable housing loans to low-income to middle-income Filipinos who want to buy a home. The Pag-Ibig Fund and Social Security System (SSS) are the two most popular agencies for government home loans.

Pros of government loans:

Longest loan terms. Homebuyers who want to reduce their monthly amortization can choose to repay their Pag-Ibig or SSS loan for up to 30 years.

Lower interest rates. Government agencies charge interest rates that are comparable to those of bank loans. Pag-Ibig housing loan interest rates range from 5.5 (one-year fixed period) to 10 percent (30 years). Interest rates for SSS housing loans range from 8 to 11 percent.

Affordable home financing. The long repayment periods and low interest rates make government loans a great choice for Filipinos with modest income.

Cons of government loans:

Exclusive for active members. To qualify, a homebuyer who considers getting a government housing loan needs to be a Pag-Ibig or SSS member.

Monthly contribution requirement. For Pag-Ibig housing loan, members need to have paid 24 consecutive monthly contributions. SSS housing loan requires payment of 24 consecutive or 36 non-consecutive monthly contributions.

Ideal for:

Pag-IBIG and SSS members who are up-to-date with their monthly contributions

Minimum wage earners

Overseas Filipino workers (for SSS housing loan)

Homebuyers who are looking for low monthly amortizations

Interest Rates

Interest rates are among the most crucial deciding factors for people looking to get a housing loan. Interest rates charged on housing loans are either fixed or adjustable, each having its advantages and disadvantages. It’s a matter of choosing the type of interest rate that works better for you.

1. Fixed interest rate

A fixed interest rate on a housing loan (also called a fixed-rate mortgage) does not change and remains at the then-prevailing rate in the market over the entire loan term, regardless of interest rate movements.

2. Variable interest rate

A variable interest rate on a housing loan or adjustable-rate mortgage varies according to changes in market interest rates during the entire loan term. Typically, it starts below the market rate and then gradually goes up.

Which is the best housing loan for you?

Certainly, there is a housing loan that suits your specific needs and financial capacity. You just need to use a free online comparison site to make finding the best housing loan for you a lot faster and easier. (Sponsored Content)


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