Understanding real estate financing options is crucial to make an educated decision when purchasing property. All of the methods offer advantages and disadvantages, so let’s examine them with explanations of fees and terms.
1. Pag-IBIG Financing: An Affordable Real Estate Financing Option for Filipinos
The Home Development Mutual Fund, commonly known as Pag-IBIG Fund, is a government savings scheme that provides low-cost housing loans to its members. Members can avail of a loan payable over 30 years, with monthly payments terms. As of 1 July 2024, the interest rate ranges from 5.750% to 9.750%, depending on the loan sum and repayment term.
Example Calculation: You’re purchasing a property for PHP 2,000,000 on Pag-IBIG financing and wish to amortize it within 20 years at an interest rate of 8.500%.
- Value of property: PHP 2,000,000
- Loanable amount: PHP 1,900,000
- Monthly Interest Rate: 8.500% / 12 months = 0.7083%
- Loan Term: 20 years (240 months)
- Monthly payment: PHP 16,916.14
With the Pag-IBIG loan amortization calculator, the monthly amortization would be around PHP 16,916.14. This is for principal, interest, and insurance, and it is the cheapest real estate financing scheme for most buyers.
For a comprehensive guide to the Pag-IBIG housing loan program, you can read Pag-IBIG Housing Loan Guidelines: Everything You Need to Know.
2. Bank Financing: A Real Estate Financing Option with Flexible Terms
Bank financing is ideal for home buyers who need quick loan approval. Philippines banks more often offer competitive interest rates and process loan applications much faster than Pag-IBIG, making it appealing to people with stable incomes.
Typically, bank loans carry a payment period of between 5 to 20 years, with a rate of interest of between 7% to 12%, varying with the bank, size of loan, and fixing term (the time in years over which the interest rate is held constant).
Sample Calculation: If you buy a home for PHP 3,000,000 through bank financing with a 10-year loan term and an interest rate of 7%:
- Selling price: PHP 3,000,000
- Downpayment: P600,000.00 (20% of the selling price)
- Amount Financed: P2,400,000.00
- Monthly Interest Rate: 7% / 12 = 0.875%
- Loan Term: 10 years (120 months)
- Monthly payment: PHP 27,866.00
The monthly installment would be around PHP 27,866.00. Bank financing is also flexible with down payments and gives you the option of shorter terms if you want higher monthly payments but lower interest payments in the long run.
For a complete guide on the bank financing program, please visit your local banks and ask for requirements.
3. In-House Financing: A Convenient Option with Flexible Approval
In-house property financing is an easy alternative directly provided by the developers of a property, thereby suitable for home buyers who are unlikely to be granted bank or Pag-IBIG loans. Even though interest charges are higher at around 10% to 18%, such an alternative can have more favorable approval conditions and thus make the purchase of property more affordable. Loan periods are shorter, generally 5 to 10 years, so purchases can be settled earlier while a straightforward application is provided.
Sample Calculation: Suppose you purchase a PHP 1,500,000 property through in-house financing. You plan to pay it off over 8 years with a 14% interest rate.
- Loan Amount: PHP 1,500,000
- Monthly Interest Rate: 14% / 12 = 1.16667%
- Loan Term: 8 years (96 months)
The monthly amortization would be around PHP 25,168. While in-house financing has a higher interest, it may work best for those who want more straightforward loan approval.
4. Spot Cash: A Discounted, Interest-Free Option
If you have sufficient cash to pay for a property in full, spot cash payment is the easiest and cheapest way as it does away with interest charges. Most developers provide discounts—usually 5% to 10% of the total amount—as an inducement to buyers who use this mode, so it is a good option for those with funds at hand.
Sample Calculation: When you buy a PHP 2,500,000 property with a 10% spot cash discount, your savings will be PHP 250,000, so the price drops to PHP 2,250,000. Since you are paying in full, you are also saving even more in the long term as you are not paying interest charges.
5. Deferred Payment: A Flexible, Interest-Free Option
Deferred cash payment provides a compromise between full payment and loan financing. Under this option, buyers can pay the amount in equal monthly installments over a short term, typically 6 to 24 months, frequently without interest, depending on the developer.
For instance, when you buy a PHP 2,200,000 property and use deferred cash payment in installments over a period of 12 months, your monthly payment will be PHP 183,333 (PHP 2,200,000 / 12 months). It gives you the convenience without incurring long-term interest expenses with the conventional form of financing.
Comparing Real Estate Financing Options
| Financing Option | Loan Term | Typical Interest Rate | Key Advantage |
|---|---|---|---|
| Pag-IBIG Financing | Up to 30 yrs | 5.750% – 9.750% | Lower rates and long terms |
| Bank Financing | 5 to 20 yrs | 7% – 12% | Faster processing |
| In-House Financing | 5 to 10 yrs | 10% – 18% | Flexible requirements |
| Spot Cash Payment | N/A | 0% | No interest, discounted price |
| Deferred Payment | 6 to 24 mos | 0% | Interest-free with monthly terms |
Which Financing Option is Right for You?
- Desire lowest monthly payments? Opt for Pag-IBIG financing—it charges the lowest interest rates and longest repayment period, thus is the cheapest.
- Desire quick loan? Bank financing provides fast turnover and easy down payment arrangements.
- Desire convenient approval? In-house financing is best for individuals with irregular income or require lesser requirements.
- Have money upfront? Spot cash payment provides greatest savings and no interest.
- Like interest-free payments? Deferred cash payment allows you to pay within 6 to 24 months without interest (developer-dependent).
Choosing the right financing option can make all the difference. Be sure to compare each option’s interest rates, repayment terms, and other conditions. For sure, one of these financing options can align with your goals and make homeownership a reality.