In Part 1 of this series, you’ve learned that long term home financing could be very expensive in the long run while at the same time it also makes an expensive property look more affordable on a monthly basis.
For many, getting a home loan is the only way to ever achieve their dreams of owning a home.
However, for those who are into real estate investing and know what they are doing, a long term loan could just be another form of leverage that should be taken advantage of.
As pointed out in the previous series, here we’ll touch on the factors to consider when retiring a long term housing loan earlier than its maturity period such that it becomes advantageous on your part as a borrower or investor. Each one of those factors is cited elaborated in the succeeding paragraphs.
Factor #1: Second Property Investment
In one of our conversations, I mentioned to a friend how lucky he was for inheriting a nice home from his parents. It turns out that each one of his siblings (there are four of them) also inherited a property in another place in the same city. He said he was very thankful to his father for all of these. When his father was still younger, he planned about investing exactly four properties and intended to give them to his children. I was really laughing when he said his father made sure these properties are located in the North-, South-, East- and Western parts of the city!
Did you know that Pag-IBIG allows you to have up to two housing loans? Of course, you have to do it one at a time. In other words, you can take on another housing loan provided your previous loan is already paid off completely. And for the second and third housing loan, you still have to undergo the qualification process just like you did when you got your first housing loan.
Is this something you have thought about already?
Ask yourself, “Am I willing to pay off this loan to get another property?”
Factor #2: Liquidity
Do you know someone whose hobby involves collecting some stuff? You know…old coins, postage stamps, vintage cars, and others.
I’ve met someone whom a lot of brokers would consider a real estate investor. And his hobby? Collecting vacant real estate properties!
Now if you would want to be in this kind of hobby, I would suggest that you get to know what you are getting into. Always have an exit plan in place, just in case something wrong happens that you can’t take it anymore.
The funny thing about real estate brokers is that they are selling properties which they themselves would not even invest. The common reason they say is that a real estate is a dead investment! (Now you know.)
Is there such a thing as a dead investment?
Let me explain it this way: Suppose you have purchased a property a year ago and then suddenly something happened that puts you in an awkward position to want some money – very, very badly. And then you think, one of the ways to raise that amount of money you needed is to sell a piece of real estate that you own. Finally, here’s the catch: “How can you sell the property at the price that you wanted without incurring a loss?”
In an emergency sale, the seller is usually willing to negotiate down the price in exchange for the much more liquid equivalent: CASH.
A dead investment is really just a fancy word for an investment in illiquid asset, such as real estate. It could also mean an investment that does not generate a passive income to the owner.
Ask yourself, “Do I have enough cash in reserve such that I won’t resort to selling my real estate at a loss when an emergency happens?”
Factor #3: Savings
When you retire a loan earlier, you most likely need to you slash your cash reserve to do that. Now that money in some way of another could be earning an interest. Once you use it to pay off the remaining loan balance, you also kill the chance for it to earn the intended interest.
When paying off your loan early, see to it that the money you use to pay off the remaining balance is earning much lower than the interest rate of your mortgage.
Say you have P 700k loan balance and you have that much cash in reserve. Now, compare the interest it will earn if you invest that money versus the interest rate of the loan. If that money is earning you 15% annually — a good rate, by the way – and your mortgage is currently at 10.5% per annum, you are better off not paying the whole balance yet.
However, if your money is giving you a mere 2.5% per annum, plus some more headaches here and there, it would be wise to use that money to pay off your loan balance.
Ask yourself, “How does the interest rate of my mortgage compare with my interest if I would invest the money I’m planning to pay it off with?”
~~~
“Long Term Mortgage Loan — How To Retire It Early” is written by Carlos Velasco. This is the second part of a two-part series. Read the first part here.
How can I avail the loan in pag-IBIG without money involve, I want to know if it is possible without equity. What is the procedure for direct loan to pag-ibig instead of real state broker.In this way I can avoid equity applied by real state owner.
I want pag ibig loan because I don’t have money to build the house. If pag ibig insist that I should construct first the house before they release my loan, it means that pag ibig is useless no need to pay contribution.
thanks for your explanation sir.
so if my principal balance is P1.2M and am able to pay say, P1M, what will be my monthly payment with interest if i want to pay the balance of P200K (maybe plus the interest too) in 2 years? thanks
is it possible to pay extra to my monthly amortization. Will that apply to the interest or just for the principal loan amount. thanks!
@Dimple:
Yes of course. Any extra payment that you make goes to cover the principal.
@ines:
Please ask for a computation at the office. But I can assure you, if you can pay 1M upfront, then paying for the 200k in two years should not be a problem.
@Felipe:
Please remember that you have other options like getting a loan from a bank.
Maybe it would help if you also read this article to really understand the whole process:
https://www.pagibigfinancing.com/articles/2010/mortgage-loan-fundamentals/
Mam/sir
As the term you used I want to retire my housing loan early. I have contacted your branch here in cagayan de Oro if I could settle my outstanding balance here since my loan was filed in Makati but they told me that they need a billing or better yet i settle my account in Makati. I also wrote a letter regarding this but it was returned to me saying that you have moved out from your office in Atrium of Makati. Can you please tell me what to do since i’m now assigned in Cagayan de Oro and going to MMla is quite costly.
thanks.
Regina Estrada Abanales
@Regina:
Indeed if you are planning to pay it off, you need to get a statement first from the branch that granted you the loan.
Please check the new address from the Directory of Pag-IBIG.
Hello po,
I am a seafarer, i already inquired for pag-ibig i have a small salary because i get most of my earning from commisions. Small amount lng yung ibinigay nilang loanable amount for me, but since more than 2M yung kailangan ko i took my brother as my co borrower.Right now i’m processing all the permit &documents for the construction & i already attended the seminar yet madami pa rin po akong question. Una po ay, ayon po sa computation na ibinigay sa akin posible kami for 25 yrs 2M loan with the principal and interest monthly amortization na 21900.00. If im going to pay. 21900 monthly &every year akong uuwi i will pay additional 150k tama po ba na dun sa computation ko na with in 5yrs and 6 months bayad ko na yung 2M including the 11.5%interest na ibinigay nila sa amin? Pangalawa, kung susundin ko po yung 25yrs na 21900.00 monthly amortization payment kung computin po natin lalabas po na sobra-sobra po sa 2M yung naibayad ko including the interest umabot po kasi ng 6.5M. Bakit po umabot ng 6.5M? Sorry po talag hindi ko po naintindihan dun sa part na yun.
I availed of a “lot only loan” worth P375,000 in 2003 payable in 25 years (automatic salary deduction). After 3 years, realizing that the total amount paid after 25 years would reach almost P2M..I inquired if I could pay the loan balance “in full” immediately. But I was surprised to learn that I needed to pay not only the loan balance but also the “interest” the Pag-ibig is expecting to get from me for “7” years…They told me that instead of P300,000++ I will be paying something like P570,000++. They said the amount will be the same even if I pay on the 7th year. This year is my 7th year and I’m paying a monthly amortization of P5,117.00. I availed of another housing loan from GSIS worth P1M with a monthly amortization of P6,000+. Can you Imagine the difference in the “Interest Rate”? Now, I wanted to pay the loan in full, but I no longer have the means to do it. Are there loan facilities that would allow me to pay-off my loans in Pag-Ibig? Any suggestions?
@Catherine:
Are you sure about that? Actually, it is against the rule of Pag IBIG to impose penalty on advanced and early payments.
@nina:
1. I can’t verify the calculation, but the effect would be either your loan term will be lowered, or you will be paying less in the future.
2. That’s due to the interest.
Can we trust pagibig to be always updated with their records? Let’s say that for a certain month I paid double my monthly amortization, will the excess payment be reflected on the next month (remaining principal is lessened, thus the interest as well)?
Upon loan takeout, is there a contract that binds you to a particular term? If there is, then you are obliged to pay that term’s monthly amortization, right?
If this is the case, then it would be best to avail of the 30 yr period, then apply the concept of retiring the loan early. Am I correct in this assumption?
Jose Fernandez on November 2nd, 2011 7:52 am
MONTHLY AMORTIZATION
>>> Principal & Interest
>>> SRI/MRI
>>> Fire
>>> Contribution
Total
I would like to know about the contribution charge. For what purpose this contribution is intended for?
Dear sir/madam,
Member po ako as POP 6 years na po.Nakabili na po ako ng lupa of 100sq.meter lang by my own money.bayad ko na po ito.kaya lang po ay wala pa akong panggastos para sa paglipat ng title worth of 30k na hinihingi ng may-ari to transfer my title.Magbabakasyon po ako sa Dec.before x`mas.Pwede po ba akong mag-loan to use to transfer my title?If yes,gaano po ito katagal ma-aprubahan?
hi. thanks for this article.
i do have inquories about early retirement. lets say i applied for early retirement of mortgage and still have 10yrs remaining and lets say its a 2M loan do you know the figure of how much i owe pag ibig? and if I applied for early retirement of my mortgage right about now do they have like a span of time for me to pay it off, say it expires for 6 months and need to reapply or i can pay for it within a years time? lets say its 15year term. hope to receive a reply.
thanks.
@Byron:
“Yes” to all of your questions.
@JoseFernandez:
Good question!
There are all required by Pag-IBIG and part of the cost of borrowing the money. The MRI/SRI and Fire Insurance are for your protection.
Contribution is your upgraded membership contribution.
@Nelia:
YOu may want to avail of the Multi-Purpose Loan for that. Read about the program here:
https://www.pagibigfinancing.com/articles/2010/the-pag-ibig-multi-purpose-loan/
@milyn:
Please don’t confuse yourself. By retiring the loan earlier, it means you are going to pay it off in full earlier than its intended time. You can do it anytime and you have some options:
1. Make advanced payments.
2. Pay the whole balance one time.
Hello, I am currently working as OFW and i took a house & lot from the company of profriends worth of 2.2M i already paid the half of the price. Can i still apply a house loan in Pag-ibig? even i am not a member yet? so waht is the procedure so i can get thru to apply for house loan?.
If I want to transfer my pagibig loan to a bank, is that possible? What does pagibig require from the bank or loan owner?
Ma’am i married to Japanese and We bought a condo unit at Manila. I already paid my payments for 4years. Fully paid. But i want to have our own house here in Japan and we need a down payments to purchase the real state here. Ma’am can I use the tittle of my property at Manila to have a loan at Pag ibig? can I avail a loan at Pag ibig, of 80% of the total Price? How? And if ever, how many days or months should I wait to recieve my loan?
@Rowena:
Sorry, but Pag-IBIG only limits property purchases in the Philippines.
@Raymond:
Yes, that’s possible. Please check this for the document requirements:
https://www.pagibigfinancing.com/articles/2010/pag-ibig-housing-loan-requirements/
@Mercy:
Pag-IBIG Housing Loan is only open to Pag-IBIG Fund members.
mam i am planning to acquire a house and lot amounting to more or less 1m php.
My husband loaned 1,250,000 with 9.5% interest for 15 years. We have been paying our MA of 14224.91 for 2 years already. If we pay an additional 700k in advance and ask for re computation, what will be the effect? will this lessen the number of years to pay and also lower the interest rate and also maybe lower the amount of the monthly amortization? Thanks.