By Rizza Sta. Ana
Your home financing option will make or break your path towards a full homeownership. Here are six questions to ask yourself when deciding on a home loan that best suits you.
Finding the right home financing is usually dependent on your budget. Most home seekers would choose a long-term, fixed-rate home loan at the lowest monthly amortization payment. It doesn’t mean, however, that this particular home financing option would benefit them in the long run.
Choosing a home financing option involves more than just deciding how much cash one can actually shell out. It also involves knowing which home loan or financing arrangement works best with one’s individual needs.
If you are at this stage in the homebuying process, here are six guide questions to ask yourself:
1. What types of home financing options can I get with a monthly payment that doesn’t affect my household budget?
The standard 20 percent downpayment, a fixed-rate loan is your best option. (Although some developers offer a stretch-payment scheme for the downpayment, with the remaining amount settled via a bank loan.) The fixed-rate home financing loan option protects you from the ever-changing interest rates, which range from 5.75 percent to as high as 12 percent for banks and 14 to 18 percent with in-house financing. Some banks offer a home loan option that has a fixed interest rate from 1 to 5 years.
2. What home financing option can I get if I cannot raise 10 percent or 20 percent of the cost of the condo or house and lot I wish to buy?
Some real estate developers offer a home financing setup wherein you pay an earnest cash payment or a reservation fee that’s significantly lower than 10, 15, or 20 percent of the total contract price of your home. (Avida’s standard reservation fee is P20,000, but dependent on the type of project the fee is for.) This type of home financing option allows a buyer to pay off the balance of the 20-percent deposit (net of earnest cash payment or reservation fee) two to three years from date of contract, depending on the available payterm of the developer.
However, this is not encouraged if you plan to recoup your investment within a short period or want to complete your loan payments sooner. Moreover, the interest levied on this home loan financing option is significantly higher than that for a short-term home loan. This is because, on the lender’s part, there is a higher risk of loaning a huge amount to a borrower who does not have enough cash to cover the downpayment compared to those who can.
3. What kind of home financing option should I consider if I need to complete the amortization payments before my kids go to college?
Definitely get a home loan with a payment term such as 10 or 15 years. This home financing option requires an initial payment that is a bit higher than the usual, but it pays off well in the end. If you regularly pay your amortization, you pay off the principal amount sooner.
This type of home financing will also allow you to build equity faster. The total amortization payments made on your home is the peso-value equivalent of your home that you already own. And owning 20 percent or more on a house and lot and condo has an additional perk. It allows you to use it as your collateral to apply for another loan like this one that can fund your startup business, continuing education or your child’s tuition, or a trip abroad.
4. I do have the money to pay for my condo outright. Should I still consider getting a home mortgage?
Go into it with eyes open. On one hand, real estate developers like Avida offer discounts to homebuyers who pay via spot cash. Discounts on pre-selling properties can go as high as 9 percent for condos and 7 percent for house-and-lot units. Spot cash payment discounts on ready-for-occupancy (RFO) units can go as high as 5 percent.
On the other hand, it is not always wise to put all of your cash in just one investment. Unless you saved that much amount of money, you should still consider a short-term home mortgage and invest the rest on ventures that can grow your money, like stocks, mutual funds, or a small business.
A better alternative is to invest in real estate bonds. The Ayala Homestarter Bond, for example, earns bond credit of up to 10 percent of the principal which you can put towards your downpayment upon maturity date. The principal amount and any remaining interest will be credited back to you.
5. I’m investing in a condo in the city, but I don’t intend to live there longer than 10 years. What are my home financing options, then?
If you are certain about your decision, definitely go for a home financing option that will get you the most equity faster. If you purchase an Avida condo, for example, you should get the 20-percent downpayment, 80% bank financing option. The approval rate is quicker and you’ll save thousands of pesos in interest as compared to a bank loan.
6. Will it matter if I get a home financing option with my current bank?
Banks can loan up to 80 percent of your total home cost. If you opt to purchase an Avida condo or a house-and-lot unit via a bank loan, you will be paying amortization at the prevailing interest rate or the average current interest rate in the economy.
This means the interest rates you will be paying on your home mortgage is a couple of percentage points lower than personal loans. This could be a good thing because there is a chance that the bank interest rate is slightly lower than the in-house financing interest rate. However, this option may backfire if the economy is not doing so well, as the adverse effect will happen.
On the other hand, applying for a home loan with your bank will be easier and faster if you have a long-standing client history with them. Your bank will also find it faster to verify your financial capacity to pay off the highest loanable amount in the given timeframe.
The most important thing to understand about reviewing your home financing options is that you should not go through it alone. The key to knowing which home financing option would best suit you is by understanding your current and future financial situation and that of your secondary decision makers.
Talk to your family members, your partner, and your broker about your home financing options. While they themselves will not pay off your amortization payments, their advice will help you realize your level of commitment to the home loan or financing option you pick. Remember, when you buy a home using home financing, you’re in it for the long haul.
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