Pagibig Financing

Pag-IBIG Fund, Housing Loans, Mortgage, Membership, Foreclosures, etc

Housing Loans

What Is Loan-To-Value Ratio?

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A key concept in helping home buyers assess how much they can borrow to finance their real property investment is the Loan – To – Value Ratio.

The Loan–To–Value Ratio (LTV for brevity) is the amount of the borrower’s loan divided by the appraised value of the property.

LTV = (Loan Amount) / (Appraised Value)

To illustrate, assume that Mr. Delos Reyes purchased a new house by the countryside worth PhP 3,000,000. He plans to borrow Php 2,400,000 from a local bank to finance his real estate investment.

Applying the concept, we get a Loan–To–Value Ratio of 80% for Mr. Delos Reyes.

LTV = (2,400,000) / (3,000,000)
LTV = 80%

Take note that in this example, we are assuming that the selling price is also the appraised value. In reality, banks will conduct their own appraisal of the property. The resulting Appraised value is used instead of the selling price, to divide the loan amount to finally determine the LTV ratio.

Equity and Loan-To-Value

Actually, the LTV ratio is the reverse of a borrower’s equity. Therefore, in our set example, since Mr. Delos Reyes has an 80% LTV ratio; he has equity of 20%.

By equity, we mean “how much a borrower owns in the value of his / her real property investment.”

So in Mr. Delos Reyes’s case, he only owns 20% of the value of his investment and owes 80% of it.

From the lender’s viewpoint, the higher equity you have tied up on your property, the less risky you are as a borrower.

A high loan-to-value ration also means that a home buyer owes more than he owns in the value of his investment. Therefore, banks will see the home buyer’s loan as one that is risky.

Low Down, High Loan-To-Value

Pag-IBIG Fund is a leading company in the Philippines that offers lower down payment and a high loan-to-value ratio, as high as 97.0% is some cases.

Other financial institutions are offering the same. But you will be required to pay for a private mortgage insurance to lessen the impact of the risk that they are placing on you as a borrower.

Financial Leverage and Loan-To-Value Ratio

Financial Leverage means the use of borrowed money to finance a real estate investment. From an investor’s viewpoint, the higher the leverage, the better because of the following reasons:

  • Their risk is minimized
  • More Cash available for other investments

The Importance of Loan-To-Value Ratio

Financial institutions generally look for three vital factors when qualifying you for a loan. These are:

  1. credit score
  2. debt-to-income ratio
  3. loan-to-value ratio

These factors are the benchmarks that helps the banks determine the following:

  1. the amount of loan to give you
  2. the interest rate of the loan
  3. the loan term
  4. whether the borrower is required to pay for a private mortgage insurance

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This article on Loan-To-Value ratio is written by Niel Kyro Jo.

Mortgage Loan Fundamentals

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Real estate properties are seldom bought on spot cash. The vast majority are purchased with a little down payment and mortgage loans on the balance.

A mortgage loan is a form of secured financing; that is, the lender gives you the needed financing and in return you pledge the property as collateral.

In a mortgage loan, there are two very important documents that you will be committed to:

  • Note – is a promise to repay the loan on a timely basis
  • Mortgage or Deed of Trust – is a pledge to secure the loan with the real estate in question in case the borrower fails on his loan obligations.

A mortgage creates a lien on the property, which gives the lender the right to foreclose the property in question.

A loan default happens when you fail to repay the loan “on time” as stipulated on the contract. If that happens, the lender can foreclose the mortgage and take on the property.

Interest Rate and Loan Term

A mortgage loan has two very important components that you need to be aware of.

  • Interest rate – is the price of using the lender’s money and is applied to the principal balance. A lower interest rate means a cheaper use of the lender’s money and should be good for you.
  • Loan term – the time it takes to pay off the whole amount borrowed. Loan term usually spans a number of years.

These two factors primarily affect the installment payments, which is usually on a monthly basis.

The amount shown on the monthly installment schedule always remains constant. When you pay off a loan, a portion goes to the interest payment and another portion goes to pay off the principal amount. In other words, the principal balance is reduced with each payment that you make. And as a consequence, the interest is also reduced as the loan matures. Early installments mostly go to the interest payments while later installments mostly cover the principal.

Down Payment and Mortgage

Most lenders will not grant you a loan that is equivalent to the selling price of the property. In many cases, they will have to appraise the property and you will be asked to put a down payment and loan the remaining balance of the appraised value.

The down payment is sometimes referred to as equity on the property.

The standard down payment is 20% of the appraised value of the property; 80% being your loan or the financed amount.

The more money you put as down payment, the lower your loan will be. And always remember that the loan bears an interest.

Now comes the question: Which is better of the two?

  1. A low down payment and large loan.
  2. A large down payment and small loan.

There are arguments favoring one over the other. It’s all up to you and your circumstances. But sometimes, the lender will force you to take on lower loan (with large down payment) to lower their risk of loaning you the money to finance your real estate purchase. That’s just pure business.

Pag-IBIG Mortgage Loan

Depending on the property and where you are buying it, Pag-IBIG Fund may give you a large amount of loan which is almost equal to the selling price of the property. But always bear in mind the maximum loan amount the Pag-IBIG Fund can grant you. If you find the amount too small for the property you are considering, you may need to come up with a large down payment or you may use an alternative financial institution.

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Mortgage Loan Fundamentals is written by Carlos Velasco.

Pag-IBIG Housing Loan 101

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One of the main concerns of Pag-IBIG Members is getting a Housing Loan. And why not? That is one of the privileges they can get as members of the Fund Company.

This article will address a number of those basic concerns about Housing Loan.

Who can avail of Pag-IBIG Housing Loan?

Pag-IBIG Loans are allowed only to Pag-IBIG Members who are at least two years already and who have contributed at least 24 months. Of course, there are other requirements, before the loan is finally granted, but the point is Loans from Pag-IBIG is only open to its members.

How much can I loan from Pag-IBIG?

The maximum housing loan amount that can be granted to any member is only PhP 3,000,000. So that means if the property you are considering is priced more than PhP 3M, you need to come up with some form of up-front payment (or equity) to settle the price difference virus the loan amount. Or, you may opt for another financial institution. Please refer to the Mortgage Loan Fundamentals.

What type of Real Estate or Real Estate Projects can be financed with Pag-IBIG?

Pag-IBIG Housing Loans can be used to financed any of the following:

  • Lot-Only Property — It could be a raw land or parcel of land in a subdivision development.
  • House Construction or Improvement — The residential unit should be constructed on a lot owned by the member.
  • House and Lot Purchase — New or old house with lot. If you are buying from a developer, please check with your broker/agent if Pag-IBIG can be used to finance the property you wanted to buy.
  • Refinancing Of An Existing Mortgage Loan

Always bear in mind that you can only get a maximum of PhP 3M loan and you are limited to residential projects only.

How much is the interest rate of Pag-IBIG Housing Loan?

Good question! Most buyers of real estate in the Philippines have no idea of the interest rate that comes with the loan. As a buyer, you should make it a top priority to know about the interest rate and be able to compare it to competing lenders.

(Interest rates are also discussed in Mortgage Fundamentals article.)

Luckily for Pag-IBIG Members, the interest rates are among the lowest in the market! Depending on the amount of loan, the interest runs from 6% to 11.5% per annum.