If you’re planning to buy a home and need a loan, this article could literally save you hundreds of thousands over the life of your mortgage—so make sure to read through and bookmark it if needed!
Here’s why comparing banks is a must, or you risk losing big money (and I’ll give you an example later to prove it):
In this article, you’ll discover the key factors that impact how much your home loan will cost, why it’s crucial to compare banks, and how to position yourself to get the best deal possible. After all, this is likely the biggest debt you’ll ever take on, so it’s worth getting it right.
Let’s dive in!
Let’s start with the most important factor when choosing a home loan: the interest rate.
Interest rates impact almost everything, including:
Here’s a simple example to show how big of a difference the interest rate can make:
Imagine borrowing 5 million pesos from the bank for 20 years at a 6% interest rate. Now, keep in mind, your interest rate may not stay the same for the entire length of your loan, but for simplicity’s sake, in this guide all examples will. Alright, so over the full 20 years, you’d end up paying 3,597,173 pesos in interest.
Now, let’s say the interest rate is 7% instead. In this case, the interest you’d pay jumps to 4,303,587 pesos. That’s a massive difference of 706,414 pesos, all from just a 1% increase!
So, as you can see, comparing interest rates between banks is super important if you want to save a ton of money.
But here’s the thing—interest rates aren’t the only factor to think about when getting a home loan. There’s more to it than just the rate, and it’s important to understand the other details that can impact your loan and your financial future.
Now, let’s talk about another big factor: how long you borrow your loan for, also known as your loan term.
Here’s a quick tip—the longer you take to repay your loan, the more interest you end up paying. And the difference between a shorter term and a longer one can be huge.
For example, let’s use the same scenario: You borrow 5 million pesos for 20 years at a 6% interest rate. Over that time, you’d pay 3,597,173 pesos in interest.
But if you pay that same loan off in 15 years, you’ll only pay 2,594,711 pesos in interest. That’s a massive 1,002,462 pesos saved just by shortening the loan term!
Clearly, the loan term makes a big difference in how much you pay overall.
But here’s something to keep in mind—each bank has its own rules about how long or short your loan term can be and that’s why it’s important to compare banks. In some cases, choosing a bank that offers a shorter term, even with a slightly higher interest rate, could save you more money in the long run.
Here’s an example:
Even though Bank #2 has a higher interest rate, you still save 507,719 pesos because the loan term is shorter!
Now, there’s a lot more to consider when getting a home loan, and it’s normal to feel a little overwhelmed. Unfortunately, banks won’t always break down these long-term consequences for you—they’ll just tell you how much you can borrow, for how long, and what your payments will be, but not which option will actually be the best for you.
Now that we’ve covered the importance of interest rates and loan terms, let’s dive into a few other factors that can have a big impact on your home loan costs.
Did you know there’s a guaranteed way to pay less interest on your home loan and pay it off much faster? It’s called making advance payments. This means you pay more than your regular monthly payment—either regularly or as a one-time lump sum.
Let’s break it down with an example:
Scenario #1: You borrow 3 million pesos from the bank at a 6% interest rate for 20 years. Over that time, you’d pay 2,158,303 pesos in interest.
Scenario #2: You borrow the same 3 million pesos at 6% for 20 years, but you make an extra payment of 1,000 pesos every month. Now, you’d only pay 1,957,396 pesos in interest. That’s a savings of 200,907 pesos! Plus, you’d pay off your loan 2 years and 7 months sooner.
As you can see, making advance payments is a powerful way to save big on interest. But here’s why comparing banks is key—some banks have restrictions, like requiring a minimum extra payment (e.g., 6 months’ worth of payments) or only allowing prepayments on the anniversary of your loan. So, it’s important to find a bank that offers flexibility suited to your financial situation.
A lot of Filipinos don’t realize that you’re not stuck with the bank you originally got your home loan from—you can switch to another bank, especially when your interest rate jumps. This process is called refinancing.
Before we dive in further, let’s talk about initial fixed interest rates versus post-fixing period rates. To attract customers, banks often offer attractive low rates for the first few years (the fixing period). However, once that period ends, your rate usually goes up, depending on various factors like the Bangko Sentral ng Pilipinas interest rates at the time.
Here’s a quick example:
If you took out a home loan this year, your interest rate probably starts around 6.25% to 8%. But for those whose fixing period is ending this year, rates are shooting up to as high as 9.8%. That’s a difference of up to 3.55% between people just starting their loan and those coming out of their fixing period.
Now, if you’re facing a rate jump to 9.8% after your fixing period, refinancing to another bank offering a new lower initial rate can be a smart move.
But here’s the catch—refinancing isn’t free. There’s usually an exit fee to leave your current bank. Some banks charge a hefty 2% of your total loan amount, while others might only charge a small flat fee of 3-5 thousand pesos. This can limit your ability to refinance and lower your interest rate, depending on the bank you’re with.
Again, another big reason to make sure you’re comparing different banks.
Refinancing can get very complicated.
Lastly, when you apply for a home loan, banks will charge bank fees, which can range anywhere from 2-3% of your total loan amount. This can add up to a significant amount, especially on a large loan. For example, if you’re borrowing 5 million pesos, you could be paying an extra 100,000 to 150,000 pesos just in fees!
These fees cover things like processing costs, appraisal fees, and administrative charges, but not all banks charge the same. Some may have higher fees upfront, while others offer more competitive rates, so it’s another important reason to compare banks. By shopping around, you can save a substantial amount not just on interest rates but on these fees as well. Always ask about all costs involved before committing to a loan.
So, if you’ve made it this far, you now understand that comparing banks isn’t just important—it can literally save you hundreds of thousands of pesos. When you’re comparing banks, make sure to pay close attention to these key factors:
By considering these factors, you’ll put yourself in the best position to secure the right home loan and save big!
Let me ask you this—would you represent yourself in court? (Lawyers, you can skip this part!) Probably not, right? Why? Because the stakes are just too high, and you’d want a professional to guide you through it.
We’ll know that when getting a home loan the stakes are also very high as this will most likely be the biggest debt you will get.
That’s why Estra Finance was created. We saw too many homeowners taking on unnecessary financial risks, and we knew it wasn’t just about them—it impacts their families and even future generations.
And here’s the best part: our services are completely free
Here’s how we help:
If you’d like to get help with your home loan then click here.
Disclaimer: The information provided in this article is for educational and informational purposes only and should not be construed as financial advice. While the strategies discussed have been researched and are presented in good faith, outcomes can vary significantly based on individual circumstances. We recommend consulting with a qualified financial advisor to tailor advice specifically to your financial situation before making any major financial decisions.
Our mission is to deliver outstanding results for you. We strive to get you the best interest rate from our partnered banks, expedite the loan approval process, and increase your chances of approval. With our expert team handling all the work, you can relax and trust us to navigate the complexities, ensuring a stress-free experience.
By comparing the leading banks in the country and using our industry expertise, we find you the best interest rates for your unique situation.
We use our industry knowledge and lender relationships to streamline your loan approval, ensuring a faster, smoother process.
We use our innovative loan strategies to compare banks, evaluate your preferred options, and provide additional guidance
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*This information is general in nature and has been prepared without taking your objectives, needs and overall financial situation into account. For this reason, you should consider the appropriateness of the information and if necessary, seek appropriate professional advice. Interest rates displayed are dependent on qualifying for a home loan with your chosen Bank. We cannot guarantee clients will avail the advertised rate.
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