Philippines Home Loan Terms EVERY Buyer NEEDS TO Know
The requirements for a business loan are often quite strict regardless of what lender you choose.
If you’re thinking it might be time to buy a house, but you’re a little intimidated by the massive amount of information out there about loans, this is the video for you.
Kamusta ka everyone, I’m Georgina, a qualified loan expert and co-founder at Estra finance here in the Philippines. We create these videos to ensure Filipinos are equipped to make the most informed financial decisions and help turn their dreams into a reality. In today’s video I’ll be deep diving into the types of home loans you can get from a bank and the common terms that you’ll come across, including their definitions. By the end of this video I promise you’ll be more equipped to go on your home buying journey.
Let’s get into some of the most important terms you should know when getting a home.
This one is easy, this is what you borrow from the bank in order to purchase a home. It can also be referred to as principle. Now the loan amount is determined by how much a bank values the property you are looking to buy.
This is how long you have to pay back the loan amount. You can choose your loan term, but most banks in the Philippines offer a minimum of 1 year and a maximum of 20 years. A few banks are now starting to extend that to 25 years, and PAG-IBIG offers a 30 year loan term.
This refers to the lump sum deposit you use to secure your home. It’s usually about 20% of the house’s selling price, but it’s usually a bit more than that for a few reasons. But that is a whole other topic, so I will be posting another video about down payments in the near future and linking it here when it’s out.
Collateral refers to an asset that you offer to a bank as security for a loan. Think of it as insurance for the bank in case a borrower fails to repay their loan as agreed – if this happens, the bank has the right to take possession of the collateral to pay back the outstanding amount of the loan. Traditionally, the collateral is actually the house you’re trying to buy, but you can use other appropriately-valued things as well, like another home you own.
This phrase refers to loans that require collateral. Unsecured loans don’t require collateral, but they are typically for smaller loan amounts and come with significantly higher interest rates, and they’re a bit harder to be approved for than a secured loan. It’s unlikely that you’d ever find a home loan that is not a secured loan.
This is a phrase that refers to several different one-off fees that are not included in the sale price of the house you’re buying. It can refer to things like processing fees, mortgage insurance, the notarisation of your documents, the processing fees of the bank, and more. These closing costs usually equal around 2-5% of the total loan amount.
The minimum you have to pay every month to pay back your loan on time. It’s kind of like rent. The bank will tell you exactly what this will be when you sign the loan documents with them, and it varies depending on the loan amount you’re borrowing, the interest rate you get, and how long your loan term is.
Interest is how much extra you’ll be charged in order to borrow from the bank. Now, there’s two important types you have to remember when purchasing a home.
A variable interest rate, sometimes called a floating interest rate, or even an annual interest rate, will change depending on market conditions and can go up or down. This can be both good and bad for the borrower, as if it increases you’re paying back more money, but if it decreases, you’re saving. Once you finish your fixed interest rate term, you will be automatically moved to the variable interest rate – but you should always ask your bank before you sign your loan documents just to make sure.
Since the interest rate can change at any time, banks offer a “fixed” interest rate for a small number of years that helps you budget long-term. Most fixed interest rates will only last for five years, but some banks do offer longer periods. Once your fixed interest rate term is over, you can ask a bank to extend your fixed rate, but it’s judged on a case-by-case basis and they charge a fee.
Often shortened to LTV, or otherwise referred to as Margin of Finance, this is an equation that shows how much you will need to borrow from the bank to buy your house, shown as a percentage. If you got a 5 million peso loan for a house selling 6 million pesos, then your LTV would be 5 million divided by 6 million and then times that number by 100 to convert it into a percentage, which is 83%.
But keep in mind that the bank will do their own appraisal of the property, meaning that even though it’s selling at 6 million pesos doesn’t mean the bank thinks it’s worth 6 million pesos – and they will adjust your LTV accordingly. Your loan to value ratio should ideally not exceed 80%.
Also, known as a credit file, this is something that outlines all the debt you’ve ever had and your payment history of that debt, known as your credit history. Your report also has a score, known as a credit score, which can be a number for the rest of the world but is more commonly a word here in the Philippines, that ranks you on how good you are at paying off your debts. These scores go from Very Poor, Poor, Fair, Good, Very Good, and Excellent. If you pay all your bills on time, you have nothing to worry about. Your credit report has a bunch of information that your bank will use to determine the risk of lending to you, and your ability to pay off a loan.
These are part of your credit report, and as the name suggests, are bad to have. Negative findings encompass things like overdrawn accounts, cancelled cards, and unpaid debts. Too many negative findings mean you won’t get approved for a loan.
This is the difference between the current value of your home and the amount you still owe on your mortgage. In simpler terms, it’s the portion of your home’s value that you truly “own” after accounting for any debt held against it. As you pay off your mortgage or your home’s value increases, your equity grows. Fun fact, if you have enough equity in your home you can use that as down payment for a second home!
Is often shortened to a Refinance or even a Loan Take Out, and it involves trading in your current loan for a new one. People usually refinance to get a lower interest rate, change the duration of their loan, or to tap into their home’s equity. Now, it’s important to talk to a professional about this as it does cost to refinance which depends on the amount you still have owing on your loan, so even though you might think you’re saving on a lower interest rate, you can still end up losing money in the short term.
What you have to pay to the government for having that money in your name. Taxes usually aren’t included in your monthly amortizations so this is something you’ll need to allocate extra cash for.
This is a type of home insurance that is used to pay for some or all of the outstanding home loan in case of the borrower’s death. For many home loans, having this insurance is compulsory, and some banks even include cover for the first year of your loan in their closing costs. Whilst you should always consider having insurance to protect your home, this MRI is specifically to help pay off your outstanding home loan.
A property title is a legal document that establishes ownership and confirms the rights of a person or entity to a specific piece of real estate. It indicates who has the legal right to possess the property, and any transfers or claims against it (like liens) are typically recorded on the title.
This refers to the process that happens when someone transfers a property title to another person. For example, when you purchase a home the seller will then transfer the title in your name. Now, if you’re getting bank financing the bank will keep possession of this document and also put what is called a mortgage “lien”. This lien ensures the bank has a claim on the property’s value until the loan is fully paid off. If the borrower fails to meet the repayment terms, the bank may have the right to take ownership of the property through foreclosure.
Also known as “prepayment”, these fees refer to the costs you incur when you pay off your loan too early – for instance, if you had a 20 year loan and you paid it off in 15 years, you will be charged an early termination penalty. Every bank charges differently for doing this, but it can be more costly than you’d expect to pay your loan off early.
This refers to properties taken by the bank due to lack of payments on a loan.
I think that about covers all the necessary terms you need to know. If I’ve missed any, just drop them in the comments And hey, whilst you’re there, like the video and subscribe to the channel. This channel exists to help empower Filipinos and enrich their lives through financial and real estate education, but we can’t do it without your support! It only takes a second and you can always unsubscribe later.
If you’re a first time buyer, you might not be aware that there’s actually different types of home loans you can get. These loans differ in three main ways: the amount you can borrow, the length of the loan, and the collateral required for it . Even if you’re not a first home buyer it’s important to be aware of the types of loans available so, if there ever comes a point where you need something to change, you know what options are available.
If you’re a first home buyer then there’s only one loan that will matter to you, and that’s the one most commonly referred to as a “home loan”, but it can also be called things like a “home purchase loan”, “house and lot loan”, and similar things like that. In this video, I’ll refer to it as a home loan.
So, besides your “normal home loan”, you can also have:
A construction loan, which is used if you have an empty lot and want to build – these are called Home Construction Loans, Property Construction Loans, or just Construction loans. These are shorter term loans compared to a normal home loan. The purpose of a construction loan is to finance the cost of building or renovating a home or another type of real estate project.
There’s a Refinancing Loan, which is often shortened to a Refinance or even a Loan Take Out. First home buyers should be aware of refinancing loans because they are designed for people who already have a loan and want to change it. This means if you find the bank is offering a loan at a lower interest rate to what you are currently paying, you can essentially swap your loan to a new rate – this is called a refinance. You can also refinance to change your loan term or tap into equity.
Then, there’s a home equity loan. A home equity loan is a type of loan that allows homeowners to borrow money using the equity they have built up in their home as collateral. People use home equity loans to get money for large expenditures like renovations or school tuition, but the money you get from your loan can be used for anything, whether that’s for a business, your home, or personal reasons. I will point out that some banks like Security Bank won’t let you use a home equity loan to start a business as they classify it as a business loan, so make sure you check with your bank to see what they’ll allow an equity loan to be used for before you apply.
The last loan is a Home Improvement loan. These are relatively small loans so you can’t use them for much besides renovations, remodeling or buying furniture. Again, this would be a shorter loan term with a lower interest rate.
Now these were just brief explanations. Expect an even bigger breakdown of these loan types in future videos.
Before we end the video I’d just like to mention two things:
Firstly, if you’re in the real estate industry and you’ve got clients who could use a loan specialist, we’d love to work with you to help your clients find the best financing for their situation. Estra Finance has a great referral program with uncapped commissions, so please sign up to our referral program using the link below.
And number 2, if you’re a potential home buyer and you’re looking for some expert guidance from before you start buying your home to getting your loan approved to refinancing your home to get a second one, we’re here to help, so check out our website and jump on our list using the link below. We will be reaching out to every single one of you on launch day, so get in early!
That’s a wrap on that, please show your support with a like, comment, and subscribe to the channel. Ingaat!
The requirements for a business loan are often quite strict regardless of what lender you choose.
The requirements for a business loan are often quite strict regardless of what lender you choose.
The requirements for a business loan are often quite strict regardless of what lender you choose.
The phrase “business loan” is an umbrella term used to refer to a loan that’s used specifically for your business’s benefit.
The requirements for a business loan are often quite strict regardless of what lender you choose.
The requirements for a business loan are often quite strict regardless of what lender you choose.
The requirements for a business loan are often quite strict regardless of what lender you choose.
The phrase “business loan” is an umbrella term used to refer to a loan that’s used specifically for your business’s benefit.