Factors That Affect Housing Loan Interest Rates in the Philippines
When applying for a housing loan you always look for a bank that offers a loan policy with the lowest interest rate. However, in the Philippines there are a number of factors that influence the interest rate of your housing loan.
In 1981, interest rates were fixed by the BSP (Bangko Sentral ng Pilipinas). Today the supply and demand for funds in the market and inflation influence the interest rates charged by various banks. The last recorded benchmark interest rate in the Philippines was at 3.50%.
Prime Lending Rate (PLR)
The PLR is a reference rate of interest that banks use to price the loan products they offer. The PLR takes into account a bank’s cost of operating, and is similar across banks. Over time, If the PLR increases or decreases, interest rates charged by banks would also increase or decrease by a similar amount.
The interest rate can also be influenced by the re-pricing period. The amount of interest rates varies depending on the amount of the loan – the higher the amount the higher the interest rate. Allied Bank charges 8.50% for 1 year and the rate goes up to 9% at two years. For a span of 15 years the rate will reach 11.50%.
But what is a re-pricing period?
This is the time frame at which the interest rates are constant. After the re-pricing period the rate of interest will adapt to market changes or for any reason Philippine banks want to change the rate. For instance, if you get a loan term of 10 years for a housing loan with a re-pricing period of 1 year the interest rate will constantly change every year for the entire term of your loan.
Other Factors That Determine Your Housing Loan Interests
Another important factor is your credit history. Your lender will check your credit history before they process your application. If they think you are high risk they will charge you with higher interest rates to compensate for the risks. The lender will take into consideration your borrowing and repayment history to determine if you are capable of repaying the loan amount you are applying for. The lender will also determine how much interest rate you can take on based on your credit score. A perfect credit history and a stable income will help you get lower interest rates for your home loan.
Another important factor is your loan term; short-term loans provide a borrower with the lowest interest rates because short-term market conditions are predictable. And since long-term economic conditions like inflation and interest rate fluctuations are quite difficult to predict long-term loans are charged with higher interest rates. The amount that you will borrow will also play a huge role in determining the rate of interest. This basically means the more you borrow the stronger your bargaining power will be.
Location is an important factor as well. Banks weigh the risks that they need to take based on your property’s location. Say for example a property that is located in a place that is growing will pose less risk to the lender. If your property is in a key location it will have a higher appraisal. Borrowers living in key locations are more likely to become profitable in the future which means they can repay their loan without any problems and this is very appealing to lenders.
Are you a loyal and profitable client?
Banks care about their clients and they want to provide the best products and services as much as possible. Unfortunately, they are also profit-driven and you will have higher chances of getting good interest rates for your housing loan if you are one of their most valued customers. Say for example you have car loans, credit cards and a savings account from the same bank you’re going to apply for a housing loan, you will be prioritized and you will get offered with very low interest rates since you avail most of their products.
Like this article? You might want also want to get to know more about mortgage loans!