Have you ever scanned through real estate website pages and found a really good deal on an affordable house and lot?
You know, the one that supposedly fits your household’s needs, but then you realize that you need an extra source of income to make comfortable monthly payments?
Or maybe you have been itching to start that home renovation project but the funds just aren’t enough?
Frustrating, isn’t it?
If you answered yes to any of these questions, then a home loan may be a viable option for you.
But, what is a home loan, exactly?
A home loan or a mortgage is a financial solution offered by banks and other financial institutions. Basically, money is lent to customers in need of real estate- or property-related support. It is a term loan that is paid in monthly amortizations aka regular payments. And it must be under a fully titled property that is free from any legal problems. Also, its valid title must be under the name of the borrower.
So, how do you go about it?
Home loans in the Philippines are done by borrowing money from a bank, in-house financing from real-estate developers, or from PAG-IBIG. These days, even an OFW housing loan is possible.
Do you need to prepare anything to apply for a home loan?
As with any important transaction, there are some requirements that need to be met in order to qualify for a home loan. Aside from filling out an application form, some typical requirements you may be asked to present include the following:
- Valid IDs
- Income documents like income tax return (ITR), Certificate of Employment (COE), and/or payslips (for employed applicants)
- Photocopy of DTI or SEC registration, Articles of Partnership, or Articles of Incorporation, whichever is applicable (for self-employed applicants)
- Audited Financial Statements (for self-employed applicants)
- Photocopy of Alien Certificate of Registration (ACR) (for foreigners)
- Marriage contract, if applicable
Do note that other and additional requirements may still be asked and vary depending on the financial institution that you applied to.
What comes next?
Upon passing all requirements and gaining loan approval, the borrower promises to pay the lender both the principal and the interest, with the property acting as the collateral for the loaned amount.
Collateral, what’s that?
This means that the property acts as a form of security that the financial institution can hold on to, in case a repayment problem arises on your end. Defaulting or failure to repay the home loan grants the lender the right to take and resell the property, as a consequence of non-repayment.
But did you know that while they are fairly common, not everyone secures home loans in the Philippines for the same set of reasons?
Check out these three ways by which you can use your home loans:
- Purchasing your own home
Perhaps the most common reason for a home loan, is you can borrow money from banks or financial institutions to purchase your dream abode.
Intent on buying house and lot in Central Luzon but you lack a certain amount of money to complete the purchase?
With a home purchase loan, you can borrow as much as eighty percent (80%) of the appraised value of the unit.
Take a look at this example:
Say you want to buy a house and lot valued at PHP 2,000,000.
Based on a sample bank’s loan scheme, the loanable amount falls at PHP 1,600,000 at 80% appraisal value. This means you would be needing to produce the PHP 400,000 using your own money as a downpayment to pay for the property.
How do you know how much you’d need to pay thereafter?
This depends on a few factors:
The first one is the loan term or loan tenure.
This indicates how long will you be paying the loaned amount. Usually, banks have a minimum of one-year loan tenure, with others giving a maximum loan tenure of as long as 20 years.
Is this the same as the fixing period?
The fixing period or fixed pricing period means that the loan’s interest rate stays the same for a specified period of time.
When does this period start and end?
It starts upon the release date of the loan.
So, if you applied for a loan this April 2022, and you have a one-year fixing period, the same interest rate is applied to your loaned amount until April 2023.
You can set this fixing period for more than a year, depending on your preferences and based on sound advice from the financial institution you are availing the loan from.
Say you chose a fixed period of 3 years, and your loan is for a term of 10 years, this means that for the first three years (out of the ten years) of your home loan, the applicable interest rate would be the fixed interest rate stated in the fixing period.
Picture it this way:
This April 2022, you applied for a home loan and availed of the three (3) years fixed rate at 6.75% interest, for a term of 10 years. That means that from April 2022 until April 2025, the interest rate applicable would be 6.75%.
Now, what happens next?
Finally, there is repricing.
Depending on the fluctuation of bank rates and current loan rates, there is a yearly review and change of interest rate. This is applied after your agreed-upon fixing period.
What does it entail?
During repricing, the interest rate can go higher or lower based on the status of the country’s economy. So after the fixing period, there will be a recomputation of interest rates effective for your existing home loan.
Let’s go back to the earlier example:
If, on April 2022, you loaned PHP 1,600,000, for a term of 10 years, and the interest rate is at 6.25% for a fixing period of one year, then you will be paying a PHP 17,965 monthly amortization until the repricing takes effect on April 2023.
Similarly, if you loaned the same amount (PHP 1,600,000) for a term of 10 years, fixed at three years interest of 6.75%, then your monthly amortization from April 2022 until April 2025 is PHP 18, 372. After which, interest rates will be recomputed again.
- Borrowing for construction purposes
Do you want to build your dream home from scratch, on a lot that you own?
With a home construction loan, you definitely can.
Because while some find it convenient to buy an affordable house and lot that’s readily available and awaiting occupancy, others want more control and customization.
And it’s understandable.
So, in times like these, a home construction loan is advisable and can suit your needs. Even home improvement projects and extensions can fall under this loan category for as long as they meet the financial institution’s minimum requirements.
- Taking out an existing home loan
Say you found a real estate agent in Manila who initially referred you to a certain financial institution for loan funding, say at a rate of 7.25% fixed at five years.
But, what if, a year after, you found another good deal with yet another financial institution that offers a rate of 5.75%?
In this case, you can still take advantage of the latter’s favorable interest rates through refinancing.
That is, you can take out another loan and use it to pay your existing loan.
That way, you will be paying a loan with a lower interest rate.
So, to conclude:
Home loans in the Philippines may take on different forms. With a valid and legitimate home loan transaction, you may use the money for home purchase, home construction, renovation, or refinancing. Knowing your options for the loan can help you better use it and make better decisions for its use.
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Ohmyhome was launched in the Philippines in September 2020, following the company’s establishment of a tech team in the country in 2017. Ohmyhome was originally founded in 2016, and subsequently rose in Singapore as a leading PropTech solution and licensed real estate agency.
Ohmyhome expanded into the Philippines so that Filipino home seekers can have a real estate partner that they can trust to have their best interests at heart and can be relied upon to provide exceptional services throughout the entire property journey.
Featuring thousands of properties across many of the Philippines’ major real estate brands, Ohmyhome differs from other local platforms by going the extra mile and extensively helping buyers narrow down their choices and find the property that best suits their budgets, home needs, and lifestyle preferences.
The company’s Real Estate Agents not only help in the shortlisting of options but also provide professional services through the entire purchasing process. These include assistance in property inspections, negotiations, the finalization of the Conditions of Sale, deposit collection, the submission of property documents, as well as providing buyers regular updates.
Ohmyhome helps Filipinos find their dream homes, all while making sure each real estate transaction is complete and is an efficient and enjoyable experience.