Review of Philippine Banks’ Home Loan Interest Rates and Process Part 1
Since my post on car loan rates is one of the most read posts in this blog, I figured it would be equally helpful to find out more about home loans.
So during some free time, I went out and talked in person to several banks about their home loans. And were you aware that there are different types of home loans?
You could get a loan for home construction. Unlike regular loans, the process is a little different. They won’t give you the money nor a letter of guarantee to the developer/builder. Instead, you’ll have to finance the house construction yourself, and they’ll “re-imburse” you in tranches. Usually, after 30%, 60% and 90% completion. And the total amount they “reimburse”/loan to you depends on their appraisal of the property.
You could also get a home equity loan. But this one doesn’t let you acquire or build a home. Instead you put up your house as collateral to get a loan, usually large expenses.
Similarly you could also get a home improvement loan, if the purpose is to repair your home or some other improvement (second floors, more rooms, etc.).
(If this sounds familiar, that’s because this is part of the reason people lost money in the global financial crises. They took out loans against their property, and then their homes’ value shrank. Leaving them to pay a large debt for a relatively “cheap” asset. The loan itself wasn’t a bad idea if put to good use, but some used it for luxury expenses.)
But of course, when most people think of home loans, they’re after a loan to let them buy a home (and usually for the first time). Some banks sub-categorize them into house, lot or condo acquisition. But it’s the same rates and basically the same process.
So what’s the process?
They’ll appraise the property. You’ll have to pay for the appraisal (usually 3-5k) and there are no refunds. If you’re buying from a large, well-known developer (Ayala land, SM, DMCI, etc.) the appraised value and the developer’s asking price is usually the same.
And the loanable amount (what they’ll actually give you as a loan) is usually 80% of the appraised value. Sometimes, depending on the developer of the property, the bank could loan you up to 95% of the appraised value (though that’s rare, and usually for the really expensive ones). Some banks also lend just 70% of the appraised value.
After that, you typically pay the initial 20% to the developer, and the bank deals with them for the remaining 80% that they’re loaning to you.
You’d also be required to pay for the Mortgage Redemption Insurance (basically a term life insurance to pay off the remainder of the loan; that way if you pass away, your family keeps the house without having to keep paying) and maybe some other insurance as well.
Having said all that, the key thing when taking out a home loan is getting the terms that fit you. That usually means either the lowest interest rates, most affordable monthly payment, the right loanable amount (and hence down-payment), number of years to pay, or some combination of those factors.
So who’s got the best home loan rates?
We’ll tackle that in Part 2! In the mean time, subscribe to the blog to make sure you don’t miss it.