Want to buy a home for your family? Don’t let a little thing like a worldwide COVID-19 pandemic stop you.
If you are currently thinking of buying property as your next step towards achieving your personal financial goals, you’ve probably considered taking out a home loan. We’re assuming this came about in the process of reassessing where you are financially, and that you’ve realized the importance of having assets like savings and properties under your name.
Before taking the next steps in securing your own home, doing thorough research will help you determine whether you are ready to take on the responsibility. As a starting point, read up on the common expressions and terminologies that you will encounter while reading up on home loans in the Philippines.
1) Annual Percentage Rate (APR)
As with other types of loans, a service fee in the form of interest is added to the principal cost in exchange for the funds advanced by the bank or financial institution. Interest rates are commonly displayed on an annual basis, which is also referred to as the Annual Percentage Rate or APR.
Use in a sentence: The prevailing Annual Percentage Rate for home loans in the Philippines ranges from 5 to 8%, depending on the loan tenure.
2) Loan Tenure
This refers to the period or length of time allotted to fully pay off a loan. This is usually measured in months, or more commonly, in years.
Use in a sentence: Housing loan interest rates is directly correlated with the loan tenure. The longer the term, the higher the APR.
The loan principal is the total amount that will be subsidized by the bank for all types of loans, including home loans. The progress made versus payment of the principal will be reflected accordingly in your monthly statements.
Use in a sentence: Banks and financial institutions earn income through the interest paid by clients on top of the principal.
4) Down Payment
To secure a home loan, developers require an upfront payment of a portion of the total cost from buyers before passing the remaining amount to lenders.
Use in a sentence: A 20% down payment is usually required to avail of a bank housing loan in the Philippines.
Should you acquire enough funds to cover your remaining loan amount before the end of your loan tenure, lenders allow prepayment or advance payment of your loan.
Use in a sentence: Prepayment of an existing loan provides utmost peace of mind for both the lender and the lendee.
Loan refinancing refers to the process of taking out a new loan to pay off the balance from a previously existing home loan. This is also an option if you are on the lookout for lower interest rates or extension of loan tenure.
Use in a sentence: Refinancing will help alleviate stress in meeting the demands of your existing home loan by enjoying lower interest rates.
Foreclosure of a home loan occurs when borrowers fail to meet the monthly payment due for an existing loan. Once a property is foreclosed, ownership will be transferred to the bank, and the bank attempts to sell the property to settle the outstanding loan amount.
Use in a sentence: To avoid foreclosure of your home, always pay your loan on time.