Housing Loans in Philippines - FAQ
Buying a house is one of the biggest purchases you’ll ever make. To help you make the best housing loan decision, we've compiled a short guide to explain what you need to know before you apply for a mortgage.
What Is A Housing Loan?
To put it simply, a housing loan is a loan used to purchase property. housing loans are also commonly referred to as 'mortgages'. In the Philippines, housing loans are available from banks, developers, or the housing Development Mutual Fund, better known as Pag-IBIG. To paint a clearer picture, we suggest that you check out our comprehensive article on the Key Differences Between a Commercial Bank, SSS, and Pag-IBIG Housing Loans. This will provide you with a better understanding on the advantages and requirements of these housing loan options. If you already have an existing housing loan and want to change to another product or lender to get better rates, that’s called 'refinancing'.
How Do Housing Loans In The Philippines Work?
When you take out a housing loan in the Philippines, you enter into an agreement with the lender (usually a bank) and promise to repay your loan over an agreed length of time (also known as the 'loan tenure' or ‘loan tenor’).
Filipinos have two options for housing loans: public, in the form of PAG-IBIG, and private, in the form of banks. Major banks that provide housing loans include BPI, Metrobank, and Security Bank. And you can compare all their housing loan rates on this site.
Interest rates for housing loans in the Philippines differ from bank to bank. For example, for a 20-year period, the interest of one housing Loan is 5.50% 1 year fixed term, while for Security Bank it’s 5.25%.
In a typical Philippine mortgage, you make monthly payments for the loan tenure until you've fully repaid both the principal of the loan and the interest. During the early years of the loan, the majority of your monthly payments will be used to repay interest, however, as time passes, a larger proportion of your payments will go into paying down the principal.
Because your interest is calculated based on what you owe on your loan each month, by paying a little bit extra each month, the interest in subsequent months will be lower.
How Do I Use A Housing Loan Calculator?
iMoney has created a housing loan calculator that makes calculating the monthly repayments and comparing rates across all banks easy for you. To use the mortgage calculator, just scroll up to the top of this page, type in the property price that you would like to borrow, and for how long are you willing to pay for it. It will do all the calculations and will present you with the best amortization and mortgage rates for you.
Housing Loan Terms
The total amount borrowed or owed on any type of loan. Making monthly payments on a basic fixed-rate loan will gradually reduce your principal.
An upfront payment made by the buyer of a house. In the Philippines, 20% is the usual down payment amount for a bank housing loan.
An interest rate is a rate that is charged for the use of money. Interest rates are displayed on an annual basis, known as the annual percentage rate (APR). For example, BPI's 10-year fixed loan has an 8% APR.
This means the length of time or period in “months” or "number of years" wherein you can repay your housing loan. If a mortgage has a "tenure" of 30 years, it usually means it would take 30 years to fully pay off the loan. The usual term for housing loans in the Philippines is up to 20 years. Generally, the longer your loan term, the higher the interest rates.
Fully or partially paying off your loan before it is due. Some banks will charge a penalty for this, so read the fine print.
Paying off an existing housing loan with a new loan that has lower rates.
When the bank repossesses your property and attempts to sell it in order to settle the outstanding amount on your loan. This usually happens when you consistently fail to pay your loan installments.
Some Factors You Need To Be Aware Of When You Choose A Housing Loan
Margin of Finance:
The margin of financing is also known as the loan-to-value ratio. Banks in the Philippines base the amount that a client can borrow on the age and income bracket of the applicant, property type and location and the current value of the property on the market. The typical margin of finance given to borrowers is 80%. So if you are going to apply for a housing loan to finance a P1,000,000 housing in a key location in Manila you are eligible for a loan amounting to P800,000, meaning you’ll have to put up the remaining P200,000 yourself as a down payment.
Early Termination Penalty:
Some mortgage lenders may apply an early termination penalty if the loan is paid off in part or in full within a specified time period, including if you refinance the loan with another lender. This specified time period where you are liable to pay an early termination penalty is called the 'lock-in period'. Depending on the term and size of your loan, this charge can be quite significant.
Fees and Charges:
These differ from bank to bank, but some common fees and charges you would expect to incur include:
- Appraisal fee
- Registration expenses
- Documentary Stamp Tax (P1.00 for every P200 of the loan amount)
- Mortgage Redemption Insurance
- Handling and Notarial fees