• Home Financing - Bank vs Pag-IBIG vs In-House Financing

    Owning a home is one of the dearest dreams of every Filipino. A home provides not just shelter but also security. Homes are also looked upon as a status symbol and an investment as it can be given out for rent or loans can be availed against its value and so on. Individuals plan and save up for a long time to purchase a house as real estate prices are always on the rise and affording a house is not an easy task. The simplest way to procure a house is by paying for it in cash, however since these prices are not affordable by everybody, most opt for other forms of financing. The most common source of financing is obtained from banks in the form of home loans. However, this is not the only form of funding that is available. Two other popular methods of financing is through Pag-IBIG housing loans or through In-house financing.

    All three methods of home financing have their own advantages and disadvantages. A comparison of the above three methods of financing are given below.

    Bank financing for home loans

    One of the most common ways for customers within the Philippines to procure financing for their dream home is through banks and lenders. These companies are usually private and provide the financial aid required to purchase a home. In order to avail home loans from banks, customers will first have to qualify for the loans. Banks usually determine the eligibility of customers through various criteria. One of the most important factors is the credit report of the customer. The basic premise is that banks and lenders provide loans to customers who have the ability to repay the loan and do not present much of a threat to them in terms of loan repayment. Therefore customers need to ensure that they have a favourable credit record before procuring the loan. In addition to this, banks also provide loans more easily to those customers who have a steady income as there is a higher likelihood of them repaying loans along with the interest rate on time.

    Banks also provide additional perks along with loans such as free consultancies or tie-ups that may be beneficial to consumers.

    That being said, although the qualification procedures are quite stringent, the interest rates tend to be slightly on the lower side which makes it ideal for most customers. Apart from this, most banks also require a down payment. The larger the down payment, lesser is the amount to be borrowed hence lower is the rate of interest charged.

    Important things to be considered before availing loans from banks are -

    • Interest rates - Interest rates are the most important criterion for prospective customers as this decides the amount they will have to repay. Lower the interest rates, lower is the amount to be repaid hence there is reduced burden on the customer. Interest rates vary from bank to bank and also this rate is based on other factors such as credit record of the customer, income, age etc. Certain banks charge fixed interest rates whereas others have a variable rate of interest. Customers should ideally shop around and find the rate of interest best suited to them financially before deciding on the first option they encounter. Also certain banks charge an interest rate that is fixed in the beginning and varies later or vice versa. Customers should calculate the amount that they would have to pay in interest rates throughout the tenure before opting for such features.
    • Tenure - this is another important factor that must be looked into by customers. Most banks offer repayment tenures of up to 5 years though this may vary. A common misconception that most customers believe in is that longer tenures are beneficial. However, this is not true. Longer tenures result in a higher repayment amount that is received by the bank. For each month that is added onto the tenure, the interest amount also increases, therefore the total amount paid by customers is a lot higher. Therefore it is advisable for customers to opt for a shorter tenure to repay the loan as soon as possible.
    • The convenience of the loan and also having a prior relationship with the bank helps.

    Customers must keep the above points in mind before opting for bank financing.

    Pag-IBIG Home Financing

    This is a government aided fund that was started to meet the housing requirements of citizens within the Philippines. The Pag-IBIG Fund(Pagtutulungan sa Kinabukasan: Ikaw, Bangko, Industriya at Gobyerno) was started in 1979 and was merged out of two funds for government and private workers. The Pag-IBIG Fund manages accounts of many members including government and private officials and all other workers with stable incomes. Ever since its conception, this loan has been instrumental in providing home loans to many Filipinos. This fund is an important mortgage payer within the Philippines and provides housing loans and undertakes Housing Development Projects such as condominium projects all over the Philippines.

    The two main types of loans provided by the Pag-IBIG Fund are program for affordable homes and program for end-user financing. The rates of interest for end-user financing is as given below -

    Housing Loan Tenor Rate of Interest
    3-Years 6.5%
    5-Years 7.27%
    10-Years 8.03%
    15-Years 8.58%
    20-Years 8.8%
    25-Years 9.05%
    30-Years 10%

    The affordable home loan is available for workers who earn a maximum of P17,500 per month and the interest rate is about 4.5% to 6.5% . The maximum loan quantum provided is P750,000.

    The end-user financing is available for those who want to procure loan amounts of up to 6 million and the interest rate starts at 6.5% per annum. The rate of interest is fixed.

    Since this loan was started so as to make housing a little more affordable for Filipinos, the interest rates are economical, starting at just 6.5%.

    However, these low rates are applicable only for low finance quantum and the higher the loan amount, higher is the interest rate.

    Therefore customers who want to purchase low-end, affordable properties can avail this financing option. Interest rates may also be subject to change, hence customers must visit the official website for further details.

    In-house financing for home loans

    This type of a loan is offered by real estate developers to those who do not want to go through the hassle of seeking third party financing and these are more or less payment tenures that are extended with relatively steeper interest rates. There are many advantages and disadvantages to this method of financing. Unlike bank loans, it is easier for customers to qualify for this financing method. Developers usually require proof of income and down payment before approving customers. Also background checks are not very extensive, which makes it ideal for those who may not have received approval from banks or have an unfavourable credit record.

    This kind of financing is usually provided for properties that are pre-selling and not those that can be occupied immediately.

    The main disadvantage of this finance method is the high rate of interest that is charged, with an average of over 50% of the market price. Also, the repayment tenure is also quite short.

    These loans are usually availed by those who are not eligible to procure loans from banks or Pag-IBIG Fund.

    Words of Advice

    Customers who wish to purchase the house of their dreams can avail one of the three options given above. Each of the options mentioned come with its own set of advantages and disadvantages. Customers must ensure that they go through the pros and cons of all and choose the option that is most viable for them financially. Owning a home is now more of a reality than a dream thanks to the options available for citizens within the Philippines.

    Do Read:

    SSS Housing Loan

    Housing Loan Refinancing

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