Home Iinancing J0J

1hinking o buying a house lere are some tips in getting a mortgage.

By leinz Bulos
September 2002

ow is the best time to buy a
house. \hether you`re a young
I1 proessional thinking out to
buy a condo unit or a ast-rising middle
manager looking or your irst house,
things hae neer looked this good or a
long time. \hateer your reasons or
buying a lot, condo, or house -
upgrading to a higher standard o liing
or inestment purposes - or een i you
just plan to make home improements,
construct a house on an owned lot or
reinance your existing mortgage, the
time is ripe.

Interest rates on loans are the lowest or
a number o years. \ou can get a
mortgage as low 8.5 nowadays, a ar
cry to a ew years ago when interest on
consumer loans were twice or een
thrice the preailing rates today. Banks
are also quite aggressie in promoting
their housing loan products and they are
out to get your business. 1he residential
real estate market is also beginning to
look good, with quite a number o
ertical and community projects
underway.

Unless you`re mega-rich and pay spot
cash, the best alternatie in inancing a
home purchase is to get a bank
mortgage. \our home will probably be
the most expensie asset you`ll eer own
and it will surely drain your resources
or more than a decade. So it would be
olly to rush through the process o
buying and borrowing just so you could
buy that dream house o yours. \hile
you shouldn`t be dragging your eet
during this ideal period or inancing a
home, you also shouldn`t grab the next
oer you get. 1ake your time, but don`t
take too long.

Beore going to all those open house
eents or calling up brokers to gie you
a tour o Metro Manila, you should start
irst with a reality check. It doesn`t make
sense looking at houses or projects, then
realizing much later that you can`t aord
them. Start irst with estimating how
much you can aord beore een
deciding on your moe. \ho knows,
you might accept the act that you need
to stay at your parents` house or keep on
paying rent a ew more years.

1hese are the things you need to ask
yoursel:

How much am I earning every
month? \our income leel is a key
actor or banks to determine how much
they can lend you. 1he rule o thumb is
your monthly amortization should be
less than 30 o your net income or
take home pay. So i you`re making
P50,000 a month - and most banks use
that as a minimum - your maximum
monthly amortization is P15,000.
loweer, some banks nowadays are
more conseratie. Len i you know
you can aord the monthly payment,
they will approe a much lower amount.

How much cash and other liquid
assets do I have? 1his is important to
know because banks will not lend 100
o the market alue o the property
you`re interested in. I it`s a lot or house
and lot, they`ll lend a maximum o 0,
or condominiums, it`s 60. In the
same way, sellers and deelopers require
a 30 down payment, although others
oer just 10. So i you`re buying a P1
million condo unit, you need P400
thousand as your equity because you can
only borrow up to P600 thousand. Most
likely, you need to pay up or the down
payment yoursel, and that would come
N
rom your saings. Some property
deelopers hae in-house inancing een
or the down payment, which they
spread out to six months. But to aoid
paying interest, it`s best to pay this in
cash outright. Keep in mind that some
sellers also require a reseration ee that
you can later apply to your down
payment. 1here are other ees related to
registration that aren`t exactly cheap
either.

How much debt and expenses do I
have? \ou hae to inorm your bank
about your monthly expenses and
current loans you hae, as those will gie
them a better idea how much you can
aord. Be honest about this because you
don`t want to be in a tight squeeze later
on. Consider also expenses in the
oreseeable uture. I you`re planning or
a wedding, a big acation, or college
tuition, take these into account. Len i
you`re sure your income will increase as
the years go by, it`s better to be on the
conseratie side.

Do I have a good credit record? Do
you oten miss your credit card
payments, or pay just the minimum all
the time Did you eer deault on your
car loan Banks share a negatie
databank, so Bank A would know your
credit record in Bank B. \our bank will
also send a credit inestigator to check
your credit history. Make sure you keep
at least three months worth o credit
card statements and deposit account
statements, which you`d be required to
submit.

Ater learning about the current state o
your inances, you need to know what
your mortgage options are. lere are
some things to understand:

Loan amount. Most banks allow up to
0 o the market alue o the property
,60 or condos, as the maximum loan
amount. 1hey also hae a minimum loan
amount, such as P400 thousand. \ou
can o course borrow less than 0 i
you can aord it. \ou can also make
balloon payments eery year to decrease
your loan or een pre-terminate the
entire loan. But make sure you don`t use
too much o your cash, as you hae to
consider other expenses. Don`t put all
your saings into the equity o your
home. \ou need to hae enough saings
or daily needs and emergency expenses.
\ou don`t want to be house-rich and
cash-poor. laing considered that, do
put in more equity as reasonable to
lessen the interest payment on your
loan. \ou also might need to do this i
you want a more expensie property
than what your banker will allow you to
buy. So een i you`re sure you can
aord a P3 million house and the
corresponding monthly amortization
based on your own calculation, but your
bank lets you borrow less than that, then
increase your equity so your loan
amount decreases.

Interest rates. 1here are ixed rates
yearly, or 2 years, 3 years, and 5 years.
Some banks oer quarterly rates.
Obiously, the longer the term, the
higher the rate. Interest rates nowadays
are at their lowest or a long time. And it
seems they will stay stable or the
oreseeable uture. I that`s your bet,
then ix your rate or 1 year or get the
quarterly repricing rate. But i you think
interest rates will shoot up suddenly,
hae it ixed or 2, 3 or 5 years. 1he
ixed rate or 5 years is between 12 to
14.5. So i the interest rate 3 years
rom now goes up more than 15,
you`re better o. 1he downside is i
rates will stay at the current 9 and
you`re paying 14.5. 1here are also two
options: straight-line declining-balance.
Straight-line means your monthly
payments are ixed. Declining-balance
means you start o paying higher
amortization in the irst ew years and
much lesser as you near the end o the
term. 1he latter results to lesser total
interest. 1he other two things to
consider about interest rates is the eect
on your monthly amortization and your
total cost. 1he lower the rate, the
smaller your amortization and total
interest at the end o the loan, and ice-
ersa. Getting a lower rate ixed or a
shorter period also means you can
qualiy or a bigger loan, as your
equialent monthly amortization would
be within the bank`s lending limit, which
is a percentage o your income.

1erm. Monthly amortizations can be
steep, so the rule is to spread the
payments as long as possible. 1he term
or loans can be as short as 1 year to as
long as 20 years. 1he longer the term,
the smaller your monthly amortization
but the higher your interest expense. I
you max out your loan to 20 years, your
dream house, which seemed such a
bargain, can turn out to be too
expensie when you include interest,
which can be add a quarter to hal o
your total costs. \ou also hae to
consider i you want to pay o your
loan as ast as possible. I you use a lot
o your income, say, in the next ten
years, you`d be sacriicing a lot o other
things. Ater the term, on the other
hand, you`ll hae lots o cash lying
around. But there`s an opportunity cost
o not being able to sae and inest
what you spent on your amortizations
early on. So you need to ind a balance.
\ou don`t want to pay too much or
interest and you don`t want to squeeze
your monthly budget.

Irequency of payment. \ou can pay
your amortization monthly, quarterly, or
ortnightly, i.e. eery two weeks. 1he
good thing about paying ortnightly is
that you can budget it along with your
payroll period. It also doesn`t seem as
big compared to paying monthly or
quarterly. Best o all, because you`re in
eect making extra payments ,2 extra
since there are 26 payments in a 365-day
year, equialent to 13 months,, your
term will shorten and so will your total
interest. Now, remember, you can tell
your banker your preerence, not just in
requency, but also the loan amount,
interest rate, and term. And don`t be
araid o making a mistake. On your
anniersary ,your loan, not your
wedding, date, you can reinance your
loan or a small ee and make changes to
the terms o your loan. Also, you can
choose how you pay your amortization.
Banks let you pay by check or automatic
debit to your account, a more
conenient option.

Other fees. Don`t oerlook the
miscellaneous ees that the property
seller and your bank charge. 1he
deeloper charges you or the
registration ee, documentary stamps,
transer tax, serice ee, lot plan,
issuance o title, maintenance ee, and
real property tax. \our bank charges you
or Mortgage Redemption Insurance
,MRI,, ire insurance, handling ee,
appraisal ee, documentary stamps,
notarial ee, and mortgage registration.
Ask your deeloper and bank which ees
apply and i they`re willing to waie
some o them. \ou can sae a little
money by doing the leg work or title
registration, but it`s usually not worth it.

\ou will know what kind o property
you`ll be able to aord by doing your
homework aboe. Keep a record o your
personal inances to know how much
equity you can put in and discuss with
your bank how much they`re willing to
lend you. O course, beore they do that,
you would hae already submitted your
loan application. 1o get a rough estimate
o how much you can borrow, go to the
banks` web sites. Some o them hae
loan calculators that compute your
amortization or loan amount. \hat you
want to ind out is the loan amount, so
you need to plug in the monthly
payments you can aord. Remember
that the amortization you`ll plug in
should include an estimate o the
monthly interest. Multiply 0 o your
monthly net income. Input the igure in
the loan calculator to get the loan
amount. But the result is not really the
loan amount, since it should incorporate
interest. Remoe 25 rom the total i
your term is 15 years, and you`ll hae an
estimate o your loan amount. Add your
equity and that`s the house or condo you
should be looking or.

Now that you know what to ask loan
oicers rom the banks you`re
considering, it`s up to you which bank
you want to apply a housing loan rom.
\hat should you consider lere are
some suggestions:

Mortgage options. \ou want a bank
that oers lexible terms. O course,
banks that oer low interest rates are
strong contenders, but that`s not the
only actor. \ou also want to make sure
they`ll let you reinance on your
anniersary date.

Service. \ou want a bank that has loan
oicers who are accommodating and
helpul and good in explaining and
answering the dumbest questions you
can ask. Len i the rate oered is
attractie but oicers are rude or
diicult to contact, orget it. \ou also
want a bank that can process your loan
in a week or less. Once you pay your
deeloper a reseration ee, it won`t be
reunded i your loan is disapproed.
Usually, deelopers gie you 30 days
ater you make a reseration to pay the
entire purchase price. So you`d want
time to apply to another bank i
necessary.

Reputation. Certainly, you want a
stable bank. \ou don`t want to borrow
rom a bank that`s in trouble. \ou also
want a bank that`s known or their
housing loan program. 1hat means a lot
o people trust them and that they`e
been airly successul lending to people
who buy homes. It also helps i the bank
has good relations with the deeloper. I
they are some sort o one o the
oicial` banks or the project, so much
the better. Coordination and acilitation
o documents and payment are quicker
and more conenient.

Convenience. \ou want a bank that
oers conenience. Some banks delier
and pick up documents rom your house
or oice. \ou also want to track your
loan balance and payments by phone
and online. It would be nice i the
bank`s web site has an alert eature that
e-mails or texts you your balance, to
make sure you don`t miss payments.

lere are the top banks that oer
excellent housing loan programs:

BPI is well-known or its consumer
loan programs. 1hey oer low rates,
lower minimum loan amount, ast
processing, and conenient payment
methods. www.bpi.com.ph

Chinatrust is the most aggressie,
oering BPI`s clients to transer their
mortgage to them, oering a 2 cut on
their interest rate.
www.chinatrust.com.ph

HSBC has one o the best programs
around. 1hey match BPI`s rate and oer
great customer serice. 1hey hae
lexible terms ,they also promote their
ortnightly payment option which most
banks don`t, as it means less interest
income or them, and conenient ways
or paying and checking your
amortization. 1hey also use their
Simulated Loan Calculator so clients can
see on the spot their amortization and
total cost using dierent combinations
o rate, term, and requency o payment.
www.hsbc.com.ph

Lquitable PCI Bank has an Own-a-
lome program, which requires a lower
monthly income to qualiy and oers
competitie rates.
www.equitablepcib.com

Metrobank . Its saings bank
subsidiary, PSBank, has an interesting
program that promises to pay your
entire principal at the end o your loan.
1hat means, howeer, there`s an add-on
to your interest rate. 1he extra income
will be used to und their later reund o
your principal. www.metrobank.com.ph

1ake adantage o the current
enironment i you really plan to inance
or reinance your uture or current
home. 1his primer should gie you a
basic understanding o home inancing.
But our best adice is: go to a bank that
will take the time to explain these to
you. It`s a buyer`s market or residential
projects and it`s a borrower`s market or
housing loans as well. 1hat means you`re
the boss. Don`t settle or anything less.