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Mortgage Philippines

By:Izak Kiefer Lim|July 23, 2019

Commonly known, purchasing a house is a once in a lifetime experience for most of us. As such, time will come when we feel the need to buy a home. It is crucial to plan, think, research, and do whatever is necessary before committing to a property to have real success in our lives or our families. After all, a home plays a significant factor in mostly all our families experiences and planning this well gets us a better chance and impact for a better life.

For families who are not able to plan well, the budget will go into costly band-aid fixes rather than essential needs. Furthermore, the lack of planning in purchasing a home has caused a lot of misery to lots of families lives in which they cannot revert. It is not uncommon to hear families homes getting foreclosed as a cause of loan defaults. This bitter experience of foreclosure is caused mostly from the lack of planning from the very beginning.

Majority of families purchase homes on a mortgage loan as it is hard to find enough liquid capital to finance the purchase outright. Here we try to discuss what a mortgage is, where it came from, and more.

What is a mortgage?

A mortgage is a loan that uses the property as collateral. In mortgage loan agreements, the borrower gets cash from the lender to use to purchase the home. In exchange, the lender will have rights to the property as collateral in case of payment defaults by the mortgagee.

Where did mortgage come about?

The first mention of a mortgage in history date backs to 1190 in England common law wherein these documents we can find illustrations and descriptions of a mortgage. It mentions of lenders secured of their loans by using the property as collateral.

What are the different types of Mortgages?

Fixed-Rate Mortgage

A mortgage agreement is a loan agreement wherein the interest on the loan remains the same throughout the loan agreement. This agreement is most common in the industry today.

Mortgage

An adjustable-rate mortgage agreement is a loan agreement wherein the interest on the loan gets adjusted periodically based on the market index of which reflects the cost of the loan to the lender.

What are the requirements in getting a mortgage?

When banks and financial institution give out loans for mortgages, they have a responsibility to approve only when the borrower has the capacity and stability to pay. Irresponsible writing of loans can cause the whole economy to go crisis as what happened with the United States in 2006. See here: United States 2006 Crisis. With this, it is crucial for banks and financial institutions to be prudent in writing loans. Over the years, the requirements for getting a home loan has become stricter with the lead of central banks. We note down some of the most common requirements banks and financial institutions ask for before approving a loan:

Stable Status

Banks and financial Institutions check that borrowers are steady and committed to their jobs with no outstanding credits to other banks or financial institutions.

Down Payment

A common downpayment requirement by banks and financial institutions is 20% of the purchase price.

PaySlip

It is a norm for banks and financial institutions to know how much the borrower earns so they could assess capacity to pay by balancing earnings with possible expenses.

Certificate of Employment with Income

The Certificate of Employment with Income is used to verify the borrower’s employment and income status.

ITR ( Income Tax Return)

The income tax return is a legitimate source to verify the borrower’s earnings.

Background

It is vital for banks and financial institutions to determine if the borrower has family and friends financially depending on him. To add, habits play a critical role in how borrowers are accepted. Last but not least, banks and financial institutions review the lifestyle of the borrower, and the risk of getting into harm’s way, such as gambling and illegal acts.

Positive Credit Score

Banks and financial institutions have an interlinked credit report on citizens. This interlinked credit report is used to counter check with other banks and financial institutions if the borrower has a good or bad credit history. Borrowers thoroughly reviewed on their credit history and on the timeliness of loan payment.

Who is involved in a mortgage arrangement?

Buyer/Borrower

The buyer gets cash from the lender to pay the home with the responsibility to pay the lender in full in a fixed amount of years.

Banks

Banks give out loans to borrowers for them to be able to purchase the home while paying the loan over a fixed amount of years. With banks, it is much easier for the average professional to acquire a house through a debt instrument called a mortgage.

Financial Institutions

At times, there are financial institutions absorbing mortgages such as inhouse financing by developers.

Seller

The seller is paid in full most times and doesn’t bear the risk of the loan unless the seller absorbs the loan and directly handles the mortgage.

When’s the best time to get a mortgage?

Interest Rates

In getting a mortgage, interest rates play a significant factor in how much we pay over the years. Knowing how the central bank influences interest rates can help us know when to take on a mortgage with reasonable interest rates. Typically, when an economy is doing well, interest rates are high as central banks stabilize the economy to avoid hyperinflation. Also, when the economy is going down, central banks lower interest rates to stimulate growth. So basically, the best interest rates are found when the economy is at a crisis.

Are we ready?

With the inflation factored in, the initial decision should be on how ready we are to take on a mortgage. Factors such as stability, family, contentment, earnings and settling should be thought of and put into consideration.

Mortgage Reference in the Philippines

Usual Mortgage Rate

The typical mortgage rate in the Philippines is at 5.5%.

Usual Mortgage Term

In the Philippines, the typical mortgage term is at 20 years.

Who should get a Mortgage and Why?

 Professionals who have a sustainable, stable job and are starting a family should commit to a property long term as this is one of the safest investments one can make. Property prices in the Philippines rarely went down. In the Philippines, property seems to be the number one investment instrument in the Philippines that could go well for the average investor. With small land areas and valuable features, who knows how much properties will go years on.

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