For a lot of people, owning a home is one of the most important achievements of their lives. After all, it doesn’t just put a roof over your and your family’s head, it also an investment for the future. A home and its land will only appreciate over time, especially if you’re getting housing in a prime location like Cavite. However, even the most modest home prices can be difficult for most people to pay in full.
The average salary in the country, according to a recent survey by Picordi.com, is about Php5,200 every month. That amounts to roughly Php180,000every year. The average cost of a standard home is around Php25,700 per square meter. As such, a house as small as 40 square meters will cost around 1.03 million PHP. It’ll take decades for the average person to save up to buy a home in cold, hard cash. This is where housing loans come in.
What is a Housing Loan?
Also known as a mortgage, a home loan is money you borrow from a bank or lender to buy a residential property. The home’s title belongs to the lender until you fully pay off the amount you’ve borrowed, and you’ve fulfilled other obligations in your contract, like paying the interest, deductibles, and more.
A mortgage, just like any other loan, comes with interest, an amount that banks and lenders charge for their lending service. Its rate can either be fixed or adjustable.
Fixed-rate means that your interest payments remain the same throughout your loan period. An adjustable-rate means that your interest payment depends on the housing market’s ups and downs. The former allows you to budget your payments consistently, while the latter gives you the chance to pay less interest, depending on how the market is doing.
What are Your Choices When Getting a Housing Loan?
There are three common options when getting a housing loan: bank financing, in-house financing, and government loans.
Here are the advantages and disadvantages of each choice.
- Bank financing – What’s great about this option is that banks are constantly competing with each other to provide attractive interest rates for their customers. Although you may get the lowest interest rates in the market from these companies, you can only attain them if you meet the banks’ strict requirements and conditions, like a higher than average income. Banks offer fixed rates, but only for a limited time. In about 10 to 15 years, you’ll be at the mercy of fluctuating market values.
- In-house financing – This involves the developer extending a loan to you, the buyer. They don’t rely on an external bank or lending firm. This may also have competitive interest rates, even lower than banks offer. However, they may have stricter requirements, too.You need to prove that you have consistent income and savings to completely pay off your loan. They may also ensure that you have a satisfactory credit score. This is because the developer shoulders all the risks in your loan. If you don’t pay up, they don’t have a bank or insurance company to fall back on.
- Government loan – You can also get help from the government in financing your residential property. In the U.S., there’s the Federal Housing Administration or FHA. The Philippines has the Pag-IBIG Fund.They all have different terms and requirements. For example, Pag-IBIG requires you to have a membership and that you pay for monthly contributions through your payroll, if you’re employed. Pag-IBIG offers fixed rates for the rest of your loan, but it tends to have slightly higher interest rates compared to banks.
It’s difficult to choose among these options, especially if it’s your first time getting a home loan. If you’re already a member, get a Pag-IBIG loan. Its fixed rate for the whole payment period is just too good to pass up, even though the interest rate may be slightly high.
If you can get low interest rates with your developer, consider getting a loan from them. This way, you only have to deal with one company when it comes to your housing matters. You also save money in the long run.
If you’re confident and comfortable about your grasp of the housing market and how you can maximize an adjustable interest rate, a bank loan may be the best choice. With the right loan type, you’ll be well on your way to finally owning the house of your dreams without having to worry about breaking the bank.