Housing Loan Interest Rates In The Philippines – Explained
When you borrow money from a lender the amount is usually charged with an interest rate. This rate is the amount charged or paid for the use of money; it is often expressed as a percentage per annum of the principal.
BSP (Bangko Sentral ng Pilipinas) had set key policy interest rates at 4% for overnight borrowing. For base lending the rate is steady at 6%.
Banks in Manila had recently slashed their home loan rates. Some banks offer loans with interest rates for as low as 5.75% because of the property boom. However, clients that subscribed to low payments with fixed rates for a year will be affected by inflation and a possible hike in BSP’s key rates because of re-pricing. HSBC began the trend by offering an interest rate of 5.88%. They reduced this rate to 5.75% to have an edge in the market. However, these “teaser” rates are only good for 1 year since there will be a re-pricing after one year.
Banks like BDO, PSBank and BPI have interest rates above 7%. For a one-year home loan BDO is offering an interest rate of 7.88%. PSBank’s interest rate is at 8.5% while BPI’s rate is at 8.75%. Borrowers should keep in mind that these rates are not fixed and subject to annual re-pricing. Adjustments are made yearly and they might be higher than the previous year.
Fixed And Variable Interest Rates
Fixed interest rates remain the same throughout the entire loan term and they are not affected by market interest rates. Your loan duration will determine whether a fixed interest rate home loan is good for you or not.
If the interest rate charged on an outstanding balance of a loan change along with the current market interest rates then it is a variable interest rate loan. Most of the home loans provided by banks in the Philippines are subject for re-pricing each year with a fixed interest rate for 1 year. Borrowers in the Philippines have the option to lock in a lower rate for 1-5 years but this varies widely from bank to bank.
For example, you borrowed P12,000,000 and you want your interest rate of 5.75% to be fixed for 3 years and your loan term is 15 years, your monthly amortization will be P99, 649.21.
How to calculate the interest rate on your housing loan?
Home loan interest rates in the Philippines are usually calculated on a monthly basis; most banks will only provide detailed computations for walk-in clients.
In some banks the interest rates are calculated on a daily basis. Say for example:
A home loan with an outstanding balance of P13, 077,012.50 at 7% interest is due every 26th of the month. However, repayments of P122, 025 are made on the 25th of each month.
P13, 077,012.50 x 7% divided by 365 days = P2508.02 per day
P2, 508.02 is calculated every day from the 26th of August 2013 until the 24th of September 2013, a span of 30 days. P2, 484.43 is calculated for 1 day of 25th September because a payment of P122, 025 was made to the loan which brings down the balance to P12, 954,987.50 for that day. The total interest charged to the loan for this month is (P2, 508.02 x 30) + P2, 484.43 = P77, 725.04. The amount of interest varies in some months because the number of days in each month varies and the interest is calculated on a daily basis not on a monthly basis.
We provide you a computation, even if you don’t want to go to your bank. Check out our housing loan comparison table!