So, you've decided to fulfill your lifelong ambition and purchase a property. However, deciding on the best home loan may be a challenge for you. Which one do you think you should pick?
The in-house financing option is available, however, the interest rates are higher. You may also apply for a house loan through a commercial bank, but most of them have strict eligibility requirements. The government offers house loans through Pag-IBIG and SSS, but what are the benefits and drawbacks?
What is the Pag-IBIG Loan?
If you're a Pag-IBIG active member and contributor, you'll have a better chance of getting a house loan, but only if you meet their terms and criteria. The Housing and Urban Development Coordinating Council owns and controls Pag-IBIG, which is a government-owned and regulated business (HUDCC). The HUDCC seeks to offer Filipino families affordable housing and finance, whether they are employed locally, self-employed, or working abroad.
Salary loans are available to Pag-IBIG members. You must pay the monthly membership contributions after you have become a member. Employers in the Philippines are responsible for paying the monthly payments, which are taken automatically from workers' monthly paychecks. The employee-employer share ratio is 2:2 if the employees' monthly salary exceeds P1,500 (in percentage). If the amount is less than P1,500, the ratio is 1:2.
If you earn P5,000 each month, for example, the employer's contribution is P100 (P5,000 x 0.02 = P100). For such donation, you additionally pay P100 to your employer. PAG-IBIG members have access to short- and long-term loans, as well as catastrophe loans and housing programs.
What are the Main Differences between a Bank Loan and the Pag-IBIG Loan?
When applying for a house loan, you must declare the loan's purpose. A new or re-purchase of a property such as a townhouse or a condo unit, the completion of home construction, and property refinancing are all considered by most commercial banks, including Pag-IBIG. Meanwhile, Pag-IBIG enables house loan applicants to buy a property of up to 1,000 square meters. Other services provided by commercial banks include home equity loans.
Pag-IBIG members can borrow up to P6,000,000, and those earning minimum wage can take advantage of a lower yearly interest rate of 3 percent to 4.5 percent under the Affordable Housing Program. The house loan applicant must, however, have a gross monthly income of less than P15,000 in the NCR zone and P12,000 outside Metro Manila to be eligible for this offer. They can only get a home loan of up to P450,000.
Commercial banks provide lower interest rates than Pag-IBIG, but only for one, two, three, or five years, whereas Pag-IBIG offers up to 30 years. If you receive a 15-year fixed rate, you'll escape the market's shifting rates (if your loan term is 15 years), which are usually higher than the rate you got when you applied for the loan. When your bank's fixed-rate ends, you're at the mercy of the prevailing interest rate on the market. That amount might be the same or higher depending on the status of the market and economy.
The process of repaying the lender for the amount you borrowed, including the principal and interest rate specified in the contract, is known as repayment. When it comes to Pag-IBIG loans, the repayment scheme is less complex to calculate because the fixed rate remains constant throughout the loan term. You can pay in a single amount, pay it off in full at any moment, or wait until the loan matures; the maximum loan term is 30 years.
When it comes to house loans from commercial banks, however, the method and calculations are more difficult and vary since the fixed duration is shorter and you must also pay an early repayment charge. Banks might offer you a fixed rate for 1 to 5 years at the most. If you have a steady income, a Pag-IBIG house loan is an excellent choice if you don't want to deal with the banks' changing rates once the fixed term is up.
When comparing the list of Pag-IBIG and commercial bank house loan criteria and qualifications, the former is more liberal, especially for new or first-time applicants. Pag-IBIG members should have contributed for at least 24 months and have no outstanding multi-purpose loans. Members can also pay the entire payment in one single amount for the next 24 months. And no Pag-IBIG loan had ever been revoked, repossessed, or bought back in the past.
On the other hand, if you apply for a home loan in banks, you don’t have to be a member of Pag-IBIG, but your monthly family income must be more than P40,000 and have a stable income. Business owners and the self-employed must submit requirements to prove the profitability of their businesses or profession over the course of at least 2 years, including financial statements and other supporting documents.
Should You Avail of a Bank Loan or the Pag-IBIG Loan?
When looking for a home loan, one of the most important factors to examine is if the loan has a low interest rate and a fixed rate, which can range from 1 to 5 years for banks. Applicants seeking Pag-IBIG loans have less limitations. Banks, on the other hand, are meticulous in their background investigations and will need you to provide a variety of supporting papers.
Banks provide low-interest rates with set rates for 1, 2, 3, and 5 years (10 years for other banks, although not common), but Pag-IBIG gives a fixed price duration of up to 30 years. Pag-IBIG's most recent interest rates are about the same and compete with bank rates. The interest rate on a BDO home loan for a one-year fixed price period is 6.5 percent. Pag-IBIG has slightly higher interest rates but allows you to fix your loan for up to 30 years.
Banks may provide reduced interest rates, but the fixed rate is only good for one, two, three, five, or ten years at most. You can borrow up to P6,000,000 from Pag-IBIG, but you must satisfy the requirements to become an active member. For first-time applicants, Pag-IBIG has more relaxed standards. Pag-IBIG processing costs are less expensive than bank loans, while bank loans take less time to process.
When it comes to these two sorts of loans, it's difficult to be objective. However, it all comes down to your own preferences, qualifications, and financial resources. If you think you'll be able to pay off your house loan early, Pag-IBIG is a better alternative because you may pick a fixed rate based on your loan term and the repayment option is simpler. However, you will pay a little higher interest rate than most banks. If you plan to stay with your firm for a long time, say 10-15 years, it's also a good time to take advantage of your employer's contribution to Pag-IBIG's monthly membership.
A bank loan is a better alternative if you understand the property market and know how to refinance your home after your set period. You benefit from reduced rates, but you must be aware of the repayment terms and circumstances, as well as the consequences if you fail to pay your monthly amortization.