Home Financing: Which Is Best for You, a Pag-IBIG Loan or a Bank Loan?
Home-ownership is a major aspiration for most working Filipinos and their families. However, the majority of people who dream of owning property seldom have enough cash to immediately pay for a house in full. This is why many turn to housing loans for their property purchase.
In the Philippines, it comes down to either turning to the Home Development Mutual Fund (or the Pag-IBIG Fund) or a private lender, mostly commercial or universal banks, for the needed loan.
As you search on printed classifieds or online listings for your future home, it is ideal to know the differences between the two housing loan types available to you, as it not only affects what size of home you can buy and when you can buy it, it also affects your finances for the foreseeable future.
|• Pag-IBIG member for at least 24 months
• Must have completed at least 24 monthly Pag-IBIG contributions (can be paid in a lump sum)
• Must be no more than 60 years of age at time of loan application
• Have no existing loans that are in arears
• Have no existing Pag-IBIG loans that have been cancelled, foreclosed, or bought back.• Be legally able to acquire and encumber real property
|• Borrower must be between the ages of 21 and 65 years old
• Must have tenure of at least two years with present company of employment, or
• Have at least three years’ worth of profitable operation if running a business or practicing profession
• Must meet the minimum monthly gross income set by lending bank (commonly ranges between Php30,000 and Php40,000) per month
When considering applying for a housing loan, the first that comes to mind for most working Filipinos is the Pag-IBIG loan. As it should be, since all full-time employees in the country are required to make monthly Pag-IBIG contributions, and not taking out a loan when needed would make those contributions seem for naught.
The biggest advantage for borrowers when opting for a Pag-IBIG loan is that the requirements are comparatively not as stringent as that of private lending institutions, letting almost anyone who is a member apply. Simply making timely contributions, not being 60 years of age, and having other existing loans, or at least those not in arears, all but guarantees approval for a Pag-IBIG loan.
|• Maximum of Php6 million (can be sum of multiple loans)
• Subject to other qualifiers like the member’s actual need and capacity to pay• Loan amount must not result in a monthly amortization that is 35% of borrower’s total gross salary
|• The minimum offered by banks differ with each, with some like the Bank of the Philippine Islands (BPI) offering as much as 80% of the total price of the property being purchased, as long as the loan does not exceed Php5million.
• The amount can also differ depending on where the property for sale is located, as is the case with banks like Philippine National Bank (PNB), whose loans differ between properties in and outside of Metro Manila.
While a Pag-IBIG loan is more accommodating for low-income borrowers, bank loans have stricter qualifications because they in turn are a more viable option for home-seekers who have pricier properties in mind. Private mortgages like those of BPI’s can cover as much as 80 percent of the total price of a property, as long as the loan does not exceed Php5 million.
In contrast, the Pag-IBIG Fund offers a current maximum of Php6 million via its End-User home financing program, or as a sum of numerous loans as the primary borrower or as a co-signer. Additionally, one does not need to be a depositor or member of the private bank to apply for a loan, or for that matter, make monthly contributions.
|Interest Rate||On June 1, 2015, the Pag-IBIG Fund decreased their interest rates to encourage more members to make use of housing loans:
6.5% – 3-year fixing period
7.27% – 5 years
8.035% – 10 years
8.585% – 20 years
9.05% – 25 years
10% – 30 years
*On July 2016, Pag-IBIG announced their lowest rate ever of 5.5 % per annum
|Some banks, like BDO and Metrobank, offer as low as 5.50% of interest for the first year, which is then subject to re-pricing:
6.25–6.50% – 3-year fixing period
6.88% – 5 years
8–8.5 % – 6–10 years
11.5–12.5% – 16–20 years
|Loan Terms||Often set a median of 15 years, but with a maximum of 30 years.||Generally between 20 and 25 years, but again varies with each bank, and sometimes on the purpose of the loan. PNB, for example, offers maximum loan terms of 20 years for loans used for the purchase of a house and lot, townhouse, condo unit, or for the construction of a house; and only 10 years for loans used for buying a vacant lot or for home improvement.|
Interest and loan terms are significant aspects of home loans, and for many it tends to be the decisive factors of considering what type, and how much, of a loan to apply for. Generally, Pag-IBIG housing loans are more favorable with regard to loan terms, as it provides borrowers a lengthier time to pay versus private bank loans.
While Pag-IBIG housing loans also involve less miscellaneous and processing fees, private bank loans may be the better option when it comes to saving money in the long run. Private loans’ interest rates, due to the constant competition between lenders, have the potential to decrease during the loan period. This is on top of the rates already being competitive at the onset of the loan.
Utilizing either a housing loan from Pag-IBIG or from a private bank remains the most efficient way to become a homeowner, but with a financial decision as significant as buying property, a lot of considerations must be made. While understanding the pros and cons of Pag-IBIG and bank loans through research is beneficial, it is still recommended to consult with loan officers and real estate professionals to reach the most informed decision possible.
Sources: PagIBIGfund.gov.ph, BDO.com.ph, BPIHousingLoans.com, PNB.com.ph, RCBCSavings.com, SecurityBank.com
N.B.: This is a guest contribution from Lamudi.com.ph.