Is buying a home or condo in the Philippines part of your medium-term plan? Unless you have the means to pay in cash, you will have to pay the amount in parts, plus interest, much like how you would pay in installments in your credit card bill.
The difference, though, is that you would need to put in the property you are buying as collateral. This home loan is called a mortgage. You enter into an agreement with a bank or another creditor who will lend you money to pay in full for the property you are buying, and then you pay the bank or creditor at an agreed interest rate over an agreed period.
Your mortgage interest rate is the annual cost of the money you borrow to pay for the property; this rate is a percentage of your total loan balance. You pay the interest, along with your principal payment, usually on a monthly basis.
For example, if you have a seven percent mortgage interest rate, that means you will pay seven percent of your total loan balance every year. At first, this amount will be big, but as you make payments over time, this amount will go down as your loan balance goes down as well while you pay it off. A longer payment period — say, 15 years — will have lower monthly principal payments but higher mortgage interest rates overall.
For comparison’s sake, you’ll find the 2019 home loan interest rates of major banks in the Philippines listed below. Rates may change after your loan is approved; ask a prospective lender bank first to check their latest rates.
Bank Interest Rates for Mortgage*
|Bank||1 year||2-4 years||5 years||10 years||15 years|
|BPI||7%||7.25% to 8%||8.5%||9.5%||10.5%|
|Metrobank||—||7.25% to 8%||8.5%||—||—|
*As of January 2019; source: “Buying a home in 2019? High interest rates will bite”, Ralf Rivas, Rappler.com
Alternatively, consider the government’s PAG-IBIG fund housing loan rates, especially if PAG-IBIG payments are deducted from your salary or if you are making volunteer payments. See 2019 interest rates below. Do check first, though, if the property developer you are buying from accepts PAG-IBIG funding.
Interest Rates (based on chosen Fixed Pricing Period)
|1 Year||3 Years||5 Years||10 Years||15 Years||20 Years||25 Years||30 Years|
So, how do you choose the best home loan for you?
First, you need to know your priorities and capacities. How much can you shell out? Ideally, your monthly payment should only be up to 30 or 40 percent of your monthly income or salary. Don’t forget that aside from the principal and interest, you need to factor in other costs like mortgage registration fees, mortgage redemption, and more.
Ideally, look for the bank or creditor with the lowest interest rate, but don’t forget to check the requirements! Bank financing generally has more requirements for applications over in-house financing (financing from the property company you are buying from), but interest rates are lower. PAG-IBIG’s interest rates are higher than some bank rates, but PAG-IBIG may be the perfect creditor for regular employees or active contributors.
Also, look at the bank’s terms. Some banks may have perks like quick loan approval, like in less than one week. If you are keen to buy a property immediately and are concerned that the price might increase soon, you might want to apply for a loan that gets approved fast.
With the information above, you can hopefully get started on finding the best bank or creditor for you. Happy home loan shopping!