Purchasing a home is one of the foremost desires of every Filipino. Along with a car and a stable career, possessing a beautiful home elevates their status in everyone’s eyes. However, purchasing a home is easier said than done, especially in the current real estate market within the Philippines. The price of a house varies based on the type of home such as villas or apartments and also based on the location. The cost can rise up to thousands of pesos unless customers purchase a home in remote areas such as Tawi-Tawi. There are many options that customers can avail of, to procure financial aid so as to purchase their dream home. One of the most common options that customers can avail of, are mortgage loans.
What are Mortgage Loans?
Loans are risky business. The profitability of loans solely depend on its repayment along with the interest rate before the due date. This is why not everyone can procure loans as and when they want, and they will also have to fit into the eligibility criteria determined by banks or lenders.
There are different types of loans and one of them is the mortgage loan. These loans are basically those that are secured by real estate or property as a collateral. This collateral provides the guarantee and security to lenders and in the event of customers not repaying their loan, lenders can sell the property and get their money back. This is something of a security blanket and therefore as compared to unsecured loans or loans without a collateral, mortgage loans are easier to procure.
Customers who avail these kind of loans may have pledged their personal homes or their company property as collateral, based on their requirements.
Where can customers procure mortgage loans from?
Customers within the Philippines have numerous options from where they can avail mortgage loans. There are a number of lenders within the country who can provide reliable mortgage loans along with good deals and additional benefits. However, as mentioned previously, loans are risky hence those customers who do not have a good financial standing or a favourable credit record will find it difficult to procure mortgage loans. The various places customers can procure mortgage loans from, are as follows -
- Mortgage Brokers
- Cooperatives, Local units of the Government and Unions
Customers can procure loans through various banks within the Philippines. While availing mortgage loans from the banks, customers need to have an idea regarding the tenure and interest rates. This is because the interest rate determines the final amount to be repaid by the customer. Also, customers assume that longer tenures will take the burden off of their loan repayment, but this is not true as the longer the tenure, more is the amount of interest that is being paid. The current interest rate offered is about 5% to 10%, however the rate may vary from bank to bank.
Many prefer receiving loans from banks as this is convenient and the procedure is also not highly complicated.
In order to understand and compare the various home loan offers available, customers can hire mortgage brokers. These brokers essentially serve as middleman between the lender and the customer who is borrowing the amount. However, these brokers represent the customer in terms of finalizing deals and so on, which is especially advantageous to those who are busy and also those who are not aware of all the technicalities involved in such deals. Mortgage brokers are also not biased and do not represent any particular lender or bank. They provide information and also expert advice and help customers get in touch with lenders and banks who are a part of their network so as to provide customers with the best possible deals.
Customers can also avail mortgage loans from any of the above. Housing loans can be procured through FICCO and Pag-IBIG schemes at low rates of interest with the amount usually starting from P400,000. SSS housing loans are another option wherein the minimum amount that can be borrowed is P400,000. Other cooperatives that customers can procure loans from are National Housing Authority (NHA) and Cooperative Pabahay Program.
Different types of Mortgage Loans
As is the case with most loans, there are various types of mortgage loans available in the market today. Although the basic premise of these loans are the same, there are few differences that may have a positive or negative impact on the customer’s financial standing. Some of the common types of mortgage loans available are -
- Fixed Rate Mortgages
- ARM or Adjustable Rate Mortgage
- Interest only loans
- Loans that are provided by the government and controlled corporations (GOCC)
If customers avail this type of a mortgage loan, then their monthly amount to be paid will be the same throughout the entire tenure of the loan. The tenure can vary from 15 to 40 years based on the lender’s terms. As mentioned previously, short terms are advised as the interest rates are lower but with a higher monthly amount. However, this also allows them to save up on a lot of pesos that would have otherwise been used for interest rates and therefore, can build the equity on their homes quickly. If customers cannot afford this monthly amount, then they will have to opt for a longer tenure but they will also end up paying a huge amount in just interest rates.
Based on the market, the interest amount and subsequently the monthly payment will vary. In the initial months, these interest rates are quite low and also fixed for a period of time (which can range from 2 to 3 years). Post this, the rate can vary and change at intervals that have been decided upon previously. When market rates increase, these interest rates can also increase very steeply. Hence, if customers are availing this type of a mortgage loan, they must be aware of all the risks associated with it.
If customers procure this type of a mortgage loan then they will have to pay the interest amount only for a predetermined period of time, usually 10 years. After this, they will only have to repay the principal amount at a rate that is accelerated.
These kinds of loans are offered by the Government and other corporations. They come with additional benefits such as low rates of interest, reduced down payments. Applying and procuring such loans are also quite easy due to guidelines that are not very stringent as compared to loans available in banks.
Tips to procure the best possible deal
- Customers should opt for those loans that provide the lowest rate of interest possible as this considerably reduces the amount to be repaid. Also, customers should also, if possible, choose a short term re-pricing offer. However, customers must also look at other aspects of the loan such as the lock in period and the accessibility of the bank (if loan is being procured from there) so as to avoid unnecessary hassles.
- Financial declaration is absolutely necessary. As mentioned before, loans are provided easily to those customers who are more likely to repay their loans on time along with the interest rates. In order to determine the eligibility, banks and lenders check the financial status and credit reports of customers. In case they have not declared their finances then banks and lenders will procure this information from other sources and any mistake in these sources will cost the customer dearly and delay the mortgage application.
- A mistake that most customers make with respect to their loans are, overlooking other charges and fees. The interest amount and tenure are important, however they are not the only important aspects of a loan. Other fees and charges also make up a significant part of the mortgage loan and hence should be given importance to.
- Insurance is one aspect that customers take with a pinch of salt and at most times are discarded due to the added amount that will have to be paid for it. However, this is a mistake as insurance is essential in worst case scenarios and certain banks and lenders require this.
- Research and Negotiate! these two terms must be taken into serious consideration. By looking around, customers may find better deals and negotiating will also enable customers to receive the best possible rates for their loan.
- Terms and conditions must be read and understood thoroughly as minor details in that may actually have a significant impact on the loan at a later date.
Do Read: Common Mortgage Loan Mistakes
Home Mortgage Relief Act
In order to aid Filipinos in purchasing their own homes, a ‘Home Mortgage Relief Act’ was proposed. This act was put forth by Senator Sonny Angara and the basis of this bill is that if individuals procure a loan then the mortgage interest on that loan can be deducted from their income tax. This Senate Bill number 2148 puts forth incentives in terms of tax for first time home purchasers.
Although homes are one of the most essential aspects of a person’s life, many within the Philippines rent homes instead of purchasing one due to the extravagant costs. Although there are various dealers offering reasonable price points and other offers, obtaining finance to purchase a house is not easy along with high rates of interest. This bill aims to provide relief for customers looking to purchase their own homes.
Benefits of the Home Mortgage Relief Act
This bill is highly advantageous for first time home buyers as it provides tax incentives. Therefore, the interest amount paid for any loan during the financial year will be deducted from their gross income. Therefore, when the bill is in effect, Pinoys will only have to pay the principal amount of their loan and not the interest amount along with tax benefits that they will enjoy. Through this act, lenders are also encouraged to provide financing that is more affordable for all Filipinos.
However,this act is only applicable on loans that cover the following aspects -
- Home loans that are availed from reputable banks within the Philippines, Pag-IBIG schemes and other corporates that have been duly approved.
- Loan quantum below P2.5 million
- Loans that are procured solely for buying or constructing homes for personal use
This act can also help OFWs - Overseas Filipino Workers who view purchasing homes within the Philippines as a form of investment. However, real estate is quite expensive and therefore if this act is put into effect, there is a chance that lenders would offer low priced and flexible financing options and enable OFW’s to purchase real estate a lot more easily.
The Home Mortgage Relief Act is generally advantageous to Filipinos. Owning a home provides privacy and freedom that is usually not available in rented homes. Apart from this, owning a home is also a form of investment and provides security and stability regardless of the situation outside. Therefore this bill would be a dream come true for all Filipinos.
Check out Mortgage Redemption Insurance
Words of Advice
Mortgage loans are ideal for those looking to purchase their own homes but lack the finances to do so. Mortgage loans are a form of secured loans and due to the presence of a collateral, the interest rates charged on these loans are lower.
Customers need to ensure that their credit records and financial standing is stable and that they are in a position to repay their loan on time so as to not attract additional penalties.
While applying for mortgage loans, individuals must ensure that they are prompt in their application, as banks and lenders may take ten days to two months just to approve the application. Delaying these can result in customers not procuring their dream home as early as they would like.
While applying for mortgage loans, customers must keep in mind not just interest rates, but also other fees and charges and also understand all the terms and conditions that come with it.
By understanding mortgage loans and following the above tricks, Filipinos can procure their dream home at the earliest without many hassles and delays. Owning a home is one of the biggest achievements in every Pinoy’s life and mortgage loans are one of the ways through which this can be realised.