Is a Housing Loan the Right Financial Solution for You?
The real estate market in the Philippines has been fast to grow over the years, and property prices are getting quite steep. In its January 2019 report, the Banko Sentral ng Pilipinas (BSP) said that real estate prices in the third quarter of 2018 shot up by 6.4%, driven especially by the demand for condominium units. Rental prices per square meter have risen as well, with the cities of Makati and Taguig commanding as much as PHP1,800 and PHP1,900 per square meter per month, respectively.
In the midst of such developments, a would-be homeowner like you might feel tempted to give up the dream of having your own house. Owning a property may seem nothing but aspirational, so you might think that your funds are best used instead to pay for home rental and your other daily necessities. However, there is also the option for you to borrow money from a creditor through a housing loan. In brief, a housing loan is a long-term loan spanning anywhere between 15 to 25 years, where the purpose may be any of the following: (1) purchase of your own house and lot, vacant lot, townhouse, or condominium unit; (2) completion of your house’s construction/renovation; (3) refinancing of a property; or (4) establishment of home equity.
In contrast to giving up your current life savings for a home purchase, or living on rent from month to month, a housing loan may just be the right financial solution for you. The question is, is the timing right for you to apply for one? Here are five different scenarios for when the answer is YES.
1. Yes—if you have a little more money to commit. Rent is still often the cheapest way to secure a living space, but in truth, you could be paying only a little over the amount of your monthly rent for the monthly amortization for your home loan. If you can afford the monthly interest rate of about 5% to 8%, then you should go for it—the additional money will go far in securing your hold on your home.
2. Yes—if you’ve saved up enough for the down payment. Most housing loans in the Philippines require anywhere from PHP 400,000 to PHP 1 million as their minimum loan amount, and you will need at least 20% of that amount in order to make the required down payment. If you’re at a point where the down payment won’t significantly deplete your savings for all your other daily expenditures, then it’s a good time to apply for a housing loan.
3. Yes—if your family’s getting bigger. Renting a small property may have been enough when you were single or alone with your partner, but if children suddenly come into the picture, you will definitely want to raise them on a secured property. At the same time, borrowing money through your home loan could help you redistribute your funds in their interest, such as for their school tuition and for family-related medical emergencies.
4. Yes—if you want to start building your credit history. If getting better at managing borrowed money is a long-term goal of yours, then your housing loan could very well act as your springboard. If you are responsible with your monthly repayments throughout the years of the loan term, this will reflect well on your credit history—and you have higher chances of getting approved for other types of loan, such as a car loan or a business loan, with your creditor.
5. Yes—if you want a valuable asset of your own for the future. For those who are thinking in terms of investment, real estate is one of the best kinds to explore. That’s because property is an asset that seldom depreciates over time; rather, it appreciates, or increases in value, as the years pass. This means that once your housing loan has matured, you may be in ownership of a property that’s more valuable than when the loan terms began. You can either make a big profit selling your home, or you can pass it on to your loved ones.
Aside from what was noted above, you may need to do some additional homework for your housing loan: comparing offers and loan minimums from the different Philippine banks, figuring out how to pay real estate property taxes, and taking care of attached costs like fire insurance premiums.
But ultimately, the rewards of securing a housing loan are plenty. It will free you up to focus on other financial matters, it will teach you valuable lessons on maintaining good credit, and most importantly, it will guarantee a roof over your head!
Leo Cruz is a content writer and marketing professional whose long-time passion has always been money management. Today, he mainly contributes pieces that are related to financial literacy, personal finance management, investments, and bank loans (e.g. housing loans and car loans). A loving husband and a father two boisterous kids, Leo also loves surfing, hiking, and traveling during his downtime.