A Guide to Getting A Housing Loan in the Philippines

Buying a home can be one of the most important purchases you’ll make in your lifetime. Unless you’re one of the lucky few with funds on hand to buy a home in cash and in one lump sum, you may have to resort to a housing loan. Use this guide to getting a housing loan in the Philippines.

Video by: Hobusa Realty

Buy or Build?

Before you apply for a loan, you must first decide whether you want to buy a home that’s already built, or build one of your own. If you choose to buy, you have several options, starting from whether the home is brand-new or second-hand property. You can also choose from a house and lot, a condominium unit, apartment unit, or townhouse. As for building, you can of course build the house you want based on your design, but you’ll have to do a lot of work—starting with finding and buying a piece of land to build it on. You’ll also need to hire an architect, designer, contractors and builders to make your dream home a reality. Apart from getting your own team together, there’s more paperwork needed for building your own home, such as blueprints, permits, and clearances from the locality where your home will be built. Note also that the terms of payment, interest rates, and the amount you can loan can vary between buy or build scenarios. Check with what the terms, amounts and interest rates are for housing loans and house construction loans in the Philippines to help you decide. Weigh your options, analyze the pros and cons of buy vs. build, and then make your decision. Your next step would be to look for the lending institution that will offer the best loan package.

Getting Started

When securing a housing loan in the PH, you have two options: get your loan from private institutions like banks, or from a government institution, such as the PAG-IBIG Fund. While the PAG-IBIG housing loan offers low interest rates, the maximum loanable amount is P6 million. Private banks can offer more money to loan to you but their payment terms and interest rates could be higher, although most banks have options for refinancing the loan if you’re in danger of default. Interest rates vary from bank to bank, as do their terms, so do some research and compare these variables from each bank before you apply for a loan.

Terms to Remember

As you browse the housing loans offered by public and private lending institutions, you must be familiar with the basic terms you’ll encounter. Here are the basic terms you’ll need to know as you search for the housing loan that’s right for you:

✅ Principal

This is the entire amount you borrowed or on your housing or any type of loan. To reduce the amount of the principal on a basic loan, you must pay fixed amounts every month until the loan is fully paid up.

✅ Interest Rate

Interest rates are a percentage of the principal charged for its use. For home and most other types of loans, interest rates are charged on an annual basis, which is also known as the annual percentage rate or APR.

✅ Down Payment

For most types of loans with a large principal, a down payment is required. This is an amount of money paid up front that’s deducted from the principal. The usual practice in the banking industry is a down payment on your home loan, amounting to 20% of the principal. 

✅ Loan Term

Loan term or tenure refers to the amount of time you’re given to be able to make payments on the loan. For housing loans, this can range from 2 to 20 years. The longer the term, the higher the interest rates and vice-versa.

✅ Prepayment

This is a payment made to a loan in part or in full, before it is due. If you have the money to pay off the balance on your principal in full, don’t do it unless you read the fine print. Some banks actually have a penalty clause for prepayments made before your loan’s due date.

✅ Default

Default is what it’s called when you fail to make payments. Understand that your loan is also a promise to make payments of an agreed amount, with interest, to your lender for an agreed amount of time in months or years until that amount is paid in full. Depending on the loan contract, you may be considered to be in default after failing to make one payment or several payments.

✅ Refinancing

This is an option that’s offered by banks if you think you’re about to default or have already defaulted on loan payments, or simply want to reduce the monthly payments on your home loan. You can avail of refinancing if you feel the need to stretch your household budget and avoid defaulting. But, in doing so, remember that your loan will have an extended term. 

✅ Foreclosure

After you have missed one or several payments on your loan, you will be considered to be in default. When this happens, you may still negotiate to pay the remainder of your loan and refinance it. If you are still unable to pay the refinanced loan or cannot agree to the refinanced terms, the bank will begin foreclosure proceedings. This means the bank will seize the asset. In this case, the bank will take possession of the home you took a loan for, and then put it up for auction for other people to buy and recover the unpaid balance of your loan. Foreclosure can sometimes be avoided altogether, but this is only in very special cases when the household’s combined income is less than P300, 000 a year, and the housing loan is provided by a government lending institution. This is known as a Housing Loan Condonation, and its conditions are presided over by the Housing Loan Condonation Act of 1998.

Mistakes to Avoid

Once you’ve decided on what type of home to buy or build, don’t apply for a loan immediately. Don’t commit these common and potentially serious mistakes first-timers make before getting your home loan:

❎ Forgetting the Cost of Living in the Home

Most people focus only on the tag price of the home, and forget the cost of actually living there. Is the home you’re taking a loan for in a location that’s close enough to work? Is the commute convenient enough? If you have kids, will their new home be close enough to get them to school on time? If the home is a condo unit, how much are the monthly dues? The cost and ease of living in the home you’re buying is one of the first things to consider before applying for the housing loan. Pick the right home that won’t cost you more in the long run.

❎ Taking a Loan that Eats Up Most of your Income

If you think you can barely make the payments each month on your home loan, reconsider the amount of your loan. Most banks require that their clients earn at least P50, 000 a month to qualify for a housing loan, and of that amount, you should devote at most 30% to 40% of that to meet your monthly payments. Should you need to allot more than that, remember that you won’t have enough money to pay for your daily expenses. Don’t shackle yourself to a loan that will drain your finances for years.

❎ Wiping Out your Savings for the Down payment

Expect to pay 20% of the total cost of a house you’ll be getting a loan for, and don’t use up all your savings for this. Wiping out any cash reserves you have to make the down payment is risky—you may need extra cash for emergencies, savings, or an investment opportunity.

❎ Rushing Without Loan Shopping First

There are a lot of banks that can offer different interest rates and cheaper loans. Do your homework and seek out all the banks or lending institutions that can offer you a good rate and terms for your loan. Don’t stick to one bank simply because it’s where you put your savings—shop around for the best deal you can get.

❎ Taking Percentages for Granted

A difference of 0.5% or even 0.25% may seem small, but when your loan is in the millions of pesos, these can add up to a significant amount. This can be especially true when making monthly payments. Remember that percentages on interest matter no matter how small, and can spell the difference between you living comfortably and living on a tight budget. Be sure you’ve precisely computed how much your monthly payment will be before signing off on a loan.

Here is a list of banks that offers housing loan along with their loan interest rates.

Eastwest Bank Home Loan

(Margin of Finance – 80%)
Interest Rate: 5.50%
Minimum loan amount: Php 500,000

RCBC Savings Bank Housing Loan

(Margin of Finance – 70%)
Interest Rate: 5.50%
Minimum loan amount: Php 300,000

Chinabank HomePlus Loan

(Margin of Finance – 80%)
Interest Rate: 5.75%
Minimum loan amount: Php 500,000

BPI Housing Loan

(Margin of Finance – 80%)
Interest Rate: 5.25%
Minimum loan amount: Php 400,000

Union Bank Housing Loan

(Margin of Finance – 80%)
Interest Rate: 6.0%
Minimum loan amount: Php 500,000

Chinatrust Housing Loan Fixed Rate

(Margin of Finance – 80%)
Interest Rate: 5.75%
Minimum loan amount: Php 500,000

Maybank Home Loan

(Margin of Finance – 80%)
Interest Rate: 6.0%
Minimum loan amount: Php 800,000

Metrobank Housing Loan

(Margin of Finance – 80%)
Interest Rate: 5.50%
Minimum loan amount: Php 500,000

PNB Sure Home Housing Loan

(Margin of Finance – 80%)
Interest Rate: 5.75%
Minimum loan amount: Php 200,000

Security Bank Home Loan

(Margin of Finance – 80%)
Interest Rate: 5.25%
Minimum loan amount: Php 1,000,000

HSBC Housing Loan

(Margin of Finance – 80%)
Interest Rate: 4.99%
Minimum loan amount: Php 2,000,000

❎ Disregarding your Credit Score

Getting a housing loan is not guaranteed, even if you have more than enough money to meet the monthly payments. If you have outstanding loans and a less-than-desirable record of missing payments on your credit card, these can become red flags against securing approval on your home loan. Don’t forget that your credit score is a reflection of your credit standing, character, ability and willingness to pay, and this will have a huge influence on whether your housing loan application gets approved or not. Check your credit score first, and find out what you need to do if it needs improvement.

❎ Listening to Bad Advice

Your best friend, co-worker or family member might urge you to buy this or that property because they already live there or knows someone who does. Don’t take theirs or anyone else’s unsolicited advice. Consult an independent realtor for an unbiased, professional opinion on the sort of property that will suit your needs and budget. ; 

❎ Not Keeping Track of Changes

Like many expenses or prices of assets, the cost of a home, a loan, and the interest rates don’t exist in a vacuum. This means that some things that affect the economy can also have an impact on your housing loan. For instance, last year’s inflation rate was high, so it caused a spike in interest rates this year. If you listened to the news and took inflation into account, you’d know that this isn’t a good time to get a loan. You’re better off not getting one this year, and waiting for interest rates to go down. Don’t rely only on the news, watch for info and trends on housing loans from the housing loan Philippines forum.

❎ Disregarding the Other Costs of the Loan

The interest and down payment on the loan aren’t the only amounts you should take into account. Apart from those, you should know of the other costs like mortgage fees, registration fees, and insurance premiums. Taxes on your home must also be considered. A wise move would be to consult with your real estate agent, and ask your lending institution’s loan officer about any other details you may not know. When obtaining a loan to buy or build your dream home, it’s not only about being financially prepared to make the payments; it also involves commitment and willpower to do all the paperwork and take on any added costs. Be sure to do all your homework and plan thoroughly before getting a housing loan—depending on your terms, it will be years before you can safely say you own your home.

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