THE BOTTOM LINE>HOUSING LOANS

The Housing Loan Primer
This is a great time to get a mortgage. You have to look at three things: the institution, the requirements, and the numbers
By Rienzie P Biolena, RFP®

For the majority of Filipinos, the purchase of their homes is probably one of the most significant and biggest investments that they will make. Whether it’s a townhouse, condominium, or house and lot, the decision to buy or build a home where the family or individual shall reside takes up a lot of time, effort, energy, and consequently, money.

Given the considerable amount that purchasing real estate entails, almost all aspiring homeowners borrow money using a mortgage, or what we more commonly call a housing loan. A housing loan gives the advantage of more manageable payments –spreading the amount over a period of years – making them lighter in terms of cash outlay, at the purchaser’s chosen terms. This uplifts the burden of paying the huge amount of cash upfront, especially when buyers do not have the ready money. Moreover, cash freed up can be channeled to other investments that in time can be used to pay off the loan.

But a housing loan is not just for construction or acquisition of property only; it could also be used for refinancing an existing home loan, for home improvement, or for any other purpose.

In securing a housing loan, buyers should thus be aware of the factors to consider so that they can get the best and practical deal in building or buying their dream home.

The Institution. The popular choices for a mortgage are banks and government institutions like PAG-IBIG and SSS. Fees, loan term, and interest rates vary across them. Banks usually give a maximum of 20 to 25 years while PAG-IBIG offers a longer term at 30 years. The minimum amount for a loan can be as low as P400,000 with a maximum loanable amount of 80% of the appraised value of the property.

The Requirements. Though the particulars vary from institution to institution, requirements at the end of the day must establish the borrower’s identity and credit-worthiness in paying off the loan as well as the legality of the property to be loaned for. Requirements must often show the income of the borrower and the title of the property involved.
Some of the typical pre-processing requirements are as follows:
• Borrower should be of legal age but not more than 65 years old upon maturity of the loan
• Identification papers (TIN, Passport, Company ID, Driver’s License)
• Marriage contract (if married)
• Bio-data/Resume
• Deposit statements of accounts (last 6 months)
• For PAG-IBIG, applicant must be a member for at least 24 months as evidenced by the remittance of at least 24 monthly contributions at the time of loan application
• For SSS, applicant should be a member and has paid at least 12 months continuous contributions or at least 24 months total contributions
For Employed Individuals:
• Latest income tax return (ITR)/W-2 form
• Certificate of employment
For Self-Employed Individuals:
• Audited financial statements and ITR for the last 2-3 years (BIR stamped)
• DTI registration
• List of suppliers and customers
• Clinic addresses and schedules (for practicing doctors)
For OFWs:
• Certificate of employment stating length of service and monthly compensation package
• POEA contract
• ITR (if any)
• Pay slips (last 6 months)
• Special Power of Attorney (Bank Form)
* All documents have to be authenticated by the Philippine Embassy/Consul if issued abroad
Collateral Requirements:
• Clear copy of owner’s duplicate of TCT/CCT
• Location map certified by geodetic engineer
• Photocopy of tax declaration/tax receipts/tax clearance
• Endorsement letter/computation sheet/contract to sell from developer stating the contract price (for accredited developer project)
Bank Forms
• Loan application
• Mortgage Redemption Insurance (MRI) application (as applicable)
Upon the submission of complete documents, loan approval usually takes around five days upon which the submission of post-approval requirements are in order. Generally, requirements include:
• Original owner’s copy of TCT/CCT
• Certified true copy of the latest realty tax declaration on land and improvements under the name of the borrower/mortgagor
• Medical examination (as applicable)
• Fire/Lightning/Earthquake insurance coverage (as applicable)
• Four copies of Special Power of Attorney, if applicable
• Opening of deposit account with the bank or the accredited receiving bank, as applicable
Once approved, loan proceeds are usually credited to the borrower’s account, ether on a lump-sum or staggered basis depending upon the completion of the property.
The Numbers. Most important in considering loans are the interest rates offered by the financing institutions. As a general rule, the longer the loan’s term, the higher the interest rate given. For instance, a 1-year loan may have a fixed interest rate of 9.5% while a 16-20-year term loan can have an 11.5% fixed interest rate. Thus, though borrowers have a stretched number of years with which to pay their loan, oftentimes, they end up paying higher due to the higher rates.
Borrowers have the option to fix the interest rates of their loan from as short as one year to as long as 25 years. Or they can reprice or adjust the interest rate of their loans in which they can protect themselves from the sudden change of interest rates in the market. For instance, in a market with rising interest rates, it is better to have a fixed interest rate for the duration of the rise so that the borrower is spared from the additional cost of rising rates. Similarly, a borrower in a falling interest rate environment would want to reprice during this time to avail of the reduced rate cost.
Nowadays, Filipinos lives in a low interest rate environment such that the BSP has in fact encouraged borrowers take advantage of this and avail of loans. As such, borrowers should watch out for the interest rate trend with which they can adjust their loan rates and in the end, save in costs. Moreover, clients with a good relationship with their bank (perhaps they have significant deposits or are good regular borrowers) may actually avail a lower interest rate.
Aside from interest rates, borrowers should also consider the fees and charges of a loan. Most financing institutions charge a non-refundable filing and appraisal fee that ranging from P1,000 to P3,500 to cover the cost of ocular inspection as well as the processing of documents.

Moreover, borrower can also avail of product bundles with their loans such as the mortgage redemption insurance as well as fire insurance, the premium payment of which depends on amount and appraisal of property.

So as in all types of loans, it is best to compare across the various housing loans available in the market. Check out the interest rates available in their Web sites (or call their hotline) as well as the documentary requirements, fees, and charges. You can also drop by the nearest office or branch of the bank and ask for more information.

EASY MONEY>MONEY MATH

Buy or Borrow?

Nelson is thinking of building a new house worth P5 million for his growing family. He and his wife Clara have accumulated savings of around P4 million. Given their aggressive investment style, they have generated an average rate of return of 15% for the last 10 years. Although there’s an ongoing economic slowdown, they figure they can still achieve the 15% average return for the next 10 to 20 years.

Now, he is seriously considering withdrawing all their investments and use the proceeds to pay for most of the costs, financing the remaining million. Clara thinks it’s a bad idea, and would rather get a bank loan and use the income from their investments to pay the amortizations. Mortgage rates average 11.5% fixed for 20 years. The bank is willing to finance the entire project since the appraisal of the house plus the lot (which they already own) already exceeds P5 million. To compromise, Nelson suggests they use half of their savings instead. What is the best move?

1. Use all their savings to pay for most of the construction.
2. Finance the entire construction cost and continue to invest their entire P4 million.
3. Use half of their savings as equity, invest the other half, and borrow the remaining P3 million.

Answer: B

It usually pays off to just borrow if you can invest your savings at a higher return than the cost of borrowing. In this case, even if their savings is just P4 million versus the P5 million total construction cost, earning 15% on the P4 million can generate annual income of P600 thousand, still enough to pay for the annual amortization of around P533 thousand, a positive net cash flow. Using half of their savings and investing the other half (or using all their savings) will result in negative cash flow. The compromise is the second best choice because even if there’s a little negative cash flow, they will still end with a positive ending cash balance after 20 years, primarily because they’ve kept half of their savings intact. So yes, cash is king.

EASY MONEY>HOW-TO

How to Get a Car Loan
You’ve decided on what car to buy. Now it’s time to shop for a car loan. Here’s the step-by-step guide to getting an auto loan:

Step 1: Shop around. Check out the Web sites of commercial and savings banks, especially those with good rates. Check the eligibility requirements, such as age and income, and the terms, including the rate, loan period, and down payment.

Step 2: Fill out and send the application form. You can either download the form from the Web site or fill it out online, if that function is available. You can also drop by the branch for a paper form. When you’re done, send the form by fax or through the branch. Some banks can give pre-approval within a few hours subject to submission of required documents while others require you first to submit these documents along with your application.

Step 3: Compile required documents. If you are employed, prepare a copy of your certificate of employment, latest pay slips, or Income Tax Return (ITR). If you are self-employed, there’s a little more work involved. Prepare your business registration papers, articles of incorporation and secretary’s certificate (if applicable), latest financial statements, and other documents (they differ per bank). You also need to give copies of valid IDs.

Step 4: Make the down payment. Once the loan is approved, you sign the loan documents and make the down payment. You also have to pay the chattel mortgage fee and other charges, including the premium for the comprehensive auto insurance policy.

Step 5: Decide how to pay. Your bank will let you pay either through post-dated checks (PDCs) or auto-debit arrangement (which means you have to open an account with them).

By Excel Dyquiangco

When William Shakespeare said “neither a borrower nor a lender be,” he was probably referring to Evelyn Corpuz. The 37-year old, who used to work for a variety show in a television network, learned that borrowing money indeed can pose a hazardous threat to a relationship. Not only is she P30,000 in debt to both her mother and sister, she admits she feels guilty about not paying them back – it has already been over a year since she borrowed from them.

And aside from not having a job right now to pay back the money lent to her, the sad part about the whole thing is that her relationship with her mother and sister isn’t what it used to be. It has become a little bit tainted, all because she is having a difficult time paying her debt.

Sounds familiar? More than not paying back what you owe a friend or a close relative, the risk of ruining a perfectly good relationship is at stake. At one point in your life, you are faced with a dilemma and a scenario. What if you are not able to pay back the money you owe your mother, what happens next? Are you willing to sacrifice the relationship because you have a hard time paying back the money that was lent to you? And the more important question: if that happens, will your relationship with a family member or a friend ever return to normal?

Actually, it can, as long as you are aware of the things that you need to do to get right on track. According to independent financial planner Josefino Gomez, borrowing money from a friend or a relative shouldn’t even be this risky – if you know what to do. He lists down a couple of things that you should remember in order to be a “good” borrower and still keep that bond with friends and relatives intact.

Avoid borrowing in the first place. If you can avoid it, don’t borrow money. Borrowing costs more since it often involves interest. Even if your mom won’t charge interest, the fact that you need to borrow means something is wrong with your finances. It could actually be a sign that you need help with perhaps your spending or saving habits, or both.

Explain your reason for borrowing. Your lender certainly wants to know how you would use the money. Borrowing money must be used as a last resort and certainly not to obtain unnecessary stuff like a new gadget (your father-in-law will certainly not be amused). You can justify asking for a loan for a real emergency, such as hospitalization, or for something that steadily appreciates, like a house or education, but not for more volatile investments like stocks.

Put it on paper. Treat it as any other loan. This should clear up any misunderstandings in the future. Be sure to state the principal amount, interest rate, term, and frequency of repayment. Also add provisions for possible extensions and remedies for failing to keep your promise. You can do away with formalities if the amount is a few hundred pesos. But for more significant amounts, insist on documenting the loan.

Pay back what you owe in any way possible. Be diligent in repaying. But what if, just like in Evelyn’s case, you are struggling to repay? Josefino Gomez says not to run and hide because the lender might think that you have no intention of returning the money. “Just be honest and be sincere,” he says. “If you owe someone P10,000, you should pay some amount back to show that you are sincere. Even P100 a day or a week will show sincerity. After a year (P100 x 52 weeks), you would have paid about P5,200, more than 50% of what you have owed.” Money can be gained or lost easily but once your reputation – and worse your good relationship – is lost, it is hard to get back.

Exercise humility. If your best friend or sister starts nagging you about your loan, don’t get defensive or agitated. Put yourself in the shoes of your lender. How would you feel if you were on the other side of the fence? You can avoid being nagged or even hounded if you show (and not just promise) earnest commitment to repay. Regardless, swallow your pride. You got yourself in this mess, so suck it up. Better, do whatever it takes to pay back and mend your strained relationship.

Establishing your reputation as a good borrower will pay off. Josefino says, “If you have shown your sincerity and have upheld your honor, you’ll reap the rewards of ready money in the future.”

By Heinz Bulos

For many borrowers, a low, affordable amortization is the primary consideration rather than the total interest expense.
1. Get an adjustable-rate loan, to take advantage of rate dips, but only if there’s a rate cap. And make sure you will still be able to afford the monthly amortization in case the rate reaches the ceiling.
2. Go for the longest term. The typical duration of a mortgage is 20 years for houses and lots and 10 years for condominiums. Nowadays, some banks offer as long as 25 years for houses.
3. Opt for a straight-line amortization schedule. Your monthly payments are fixed for the entire duration, unlike declining-balance, which starts off with higher payments in the first few years.
4. Pay twice a month. It won’t lower your amortization any more than twice a month but it will let you feel less of the pinch. And it’s definitely easier on the wallet than paying fortnightly.
5. Some banks let you pay just the interest for the first year or other set period. You pay a lower monthly amortization in the short run. But do so with extreme caution.
6. Other lenders let you pay very low monthly amortization then require you to make huge balloon payments every quarter or every year. It makes sense only if your earning pattern is similar.
7. Make pre-payments to your principal and ask your bank to adjust your monthly amortization based on the new principal balance.