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

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 to 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.

By Rienzie P Biolena, RFP®