Tips and Traps

Pag-IBIG Financing vs Bank Financing — A Mortgage Loan Comparison

Do you have any idea how much is the going rate of the Home Loan Program offered by your favorite bank?

As a home buyer, one of the first steps you should take before starting the legwork of searching for your home is to get to know the interest rates currently available in the market. That is, shop for the best home loan first, and then shop for the house.

If you have been visiting this website for quite a while, you should already know the interest rates of a Pag-IBIG Housing Loan.

Did you make any comparison of Pag-IBIG Housing Loan versus the competing Bank Housing Loan? You should. Just because you are a member of the Pag-IBIG Fund doesn’t always mean that it’s the only option you have when financing your home purchase. The banks may offer an even better alternative mortgage loan that really fits your needs.

When it comes to Housing Loans at larger amounts, most banks in the Philippines offer almost the same interest rates as those of the Pag-IBIG Fund. As a matter of fact, banks are even more competitive that most high-end buyers are using them to save on a lot of hassle involved with getting a Pag-IBIG Housing Loan. If that’s the case, why should you even bother getting a Housing Loan from Pag-IBIG?

One site visitor has a keen observation on this matter and she dropped a message that read in part:

Pag-IBIG Financing versus Bank Financing

“What is the advantage of choosing PAGIBIG over banks? I’m looking at the interest and they are almost identical. Your answer might help me choose the lender for my property.”

In this article, we’ll compare the two financing options citing the advantages and the disadvantages of each.

Membership

A Pag-IBIG Housing Loan is only available to Pag-IBIG Fund members. That’s the basic requirement and yet that’s also one of the main reasons most Filipinos can’t get access to the housing loan with the Pag-IBIG Fund. If your membership record with the Pag-IBIG Fund is not very impressive, your loan application may also be affected.

Getting a mortgage loan from a bank, however, doesn’t require any membership at all. You don’t even have to be a depositor at the bank to be considered a housing loan applicant. You can be a depositor at any bank and then apply for the competing bank and you are free to choose which one you think offers the best loan.

Income Requirements

You are probably aware that a member’s loan amount entitlement has a lot to do with his level of income. Luckily, you don’t have to guess anymore to see which loan amount you can possibly get given your current income. Please check our article that discusses the Income and Loan Entitlement and see which loan bracket you are at.

(See: What to do if you are denied a Pag-IBIG Housing Loan?)

Loan Amount

The minimum loan amount that you may be granted with a Pag-IBIG Housing Loan is P 100k. The maximum is only P 3M – so if your project costs more than that and you are to finance it with Pag-IBIG Housing Loan, don’t even bother getting a Pag-IBIG Housing Loan.

Unlike the Pag-IBIG Fund, a lot of banks will only entertain you if you are loaning at least P 800k for a housing loan. At the flip side, a bank will also not give you a ceiling on the amount of loan that you can take as long as you are capable of paying for the loan and you are not really a risky borrower based on their assessment of your financial documents.

Banks have their qualifying parameters too that they use when evaluating a loan application. And it varies from one bank to another. As a general rule, your gross income should be at least three times greater than your monthly amortization for you to have a good chance of getting the money. You’ll be asked to fill up a detailed Financial Information Sheet and always expect them to verify the accuracy of whatever you put there.

Loan Term

This is perhaps the biggest reason why Pag-IBIG Financing is so popular. A Pag-IBIG Housing Loan is noted for offering a long term loan of 20 to 30 years!

On the average, a bank can offer between 5 to 10 years on their housing loan clients. A 20-year loan is very rare with them.

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“Bank Financing Vs Pag-Ibig Financing — A Mortgage Loan Comparison” is written by Carlos Velasco.

Long Term Mortgage Loan — How To Retire It Early, Part 2 of 2

by Pag-IBIG Financing Admin

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

real estate 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?”

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“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.

Long Term Mortgage Loan — How To Retire It Early, Part 1 of 2

by Pag-IBIG Financing Admin

Some of you may have already thought about, or even calculated, the real cost of getting a mortgage loan to finance your home purchase. If you did, that’s a good sign that you are savvy when it comes to your money. Keep that good habit alive.

The calculation is actually very simple and straight-forward. All you have to do is multiply the amount of monthly amortization by the total number of months – say, by 360 for a 30-year loan term – and that’s it. It’s no brainer, actually.

However, if you want to find out the total amount of money that goes to paying the interest, you need to use the Online Calculator which you can find at the Right Panel of this website or by following this link. With the help of that calculator, it’s easier to figure out how much of you payment is being swallowed by the interest payments.

(See also: Mortgage Loan Calculator.)

Long Term Home Financing and Its Effects

Did you notice that a long term loan of 20 to 30 years could literally cost three times, or even more, than the original amount that you borrowed? That is, if you borrowed P 1M and plan to pay it off in 30 years at 10% per annum interest rate, it will actually cost you roughly P 3M in combined interest and principal payments alone!

pag-ibig long term housing loan For some people, that is enough to spin their heads around and decide against ever using a long term loan. One site visitor was thinking along this line and left a comment this way:

“wow! now I see it’s better to buy a property in cash than finance through PAG-IBIG. The interest almost exceed the principal, you can even buy another house with that interest!”

Do you agree?

Well, actually he was right about the enormous amount of money at stake in the long term. But, let’s get real and think along this line:

“At your current level of income and lifestyle, how many years do you think it will take you to raise the amount of money equivalent to the selling price of the house that you wanted to buy?”

Let’s put a real figure this time, “How many years will it take you to save P 2M?” I’m assuming you are eyeing a house with a P 2M price tag. When answering that, you should consider the following:

Your Income. Or your combined income if you are married
Your Lifestyle. Is it high- or low-maintenance?
Your Priorities. Make a list: your wedding, advanced education, job placement fee, etc – anything that costs money and that is important to you.
Your Foundation. Think: the people who depended on you for financial support.
Your Debts. Don’t ever forget this part before taking on another debt, your house.

How many years, then?

1 year? This is not impossible at all. But for most Filipinos, no matter how hard they work, are just not on that level yet.
3 years? Congratulations! You probably should aim for a higher priced home.
5 years? Congrats even more! Have you ever heard of the term inflation? Well, that’s a nasty word which means that the P 2M house you originally thought about buying should have already increased in price by that time.
10 years? Sigh… finally! But hey, are you still motivated about buying a home after the long wait?

You may want to disagree here, but if we get REALLY real, the sad answer to that question is FOREVER. Many people will reach their prime age without ever accumulating that amount in liquid asset – that is, in cold CASH. Hard to believe? Well, if the dead could only speak, they would all nod their heads in agreement. 🙂

Long Term Home Financing — The Beauty And The Beast, 2-In-1

The beauty of long term home financing is that it makes a financially-out-of-reach real estate appear light on the budget on a month-by-month basis.

Recently, I came across a real estate ad that says something like, “Own a home. Only 249 per day!”

That’s a brilliant Marketing Strategy and I bet it works. Thanks to Long Term Home Financing, owing a home gets even more affordable. That is, if you have the discipline to say goodbye to Starbucks.

But of course, a long term loan doesn’t always mean you have to pay off the loan to its last payment schedule. You can always retire it earlier than that. There are advantages and disadvantages in doing so.

In part two of this series, we’ll touch on the reasons for retiring your loan earlier than its maximum term. Plus, some tips on how to do it.

UPDATE: The second part of this article was already posted. Please check it now.

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“Long Term Mortgage Loan — How To Retire It Early” is written by Carlos Velasco. This is part one of a two-part series.

5 Tips To Take If Your Housing Loan Application Is Denied

by Pag-IBIG Financing Admin

In an ideal world, you should never be turned down whenever you apply for a Pag-IBIG Housing Loan. You can simply go to the office of the Pag-IBIG Fund, the staff would be excited to serve you, you smile as you submit all the requirements and wait the next day for the approval. What wonderful world it would be!

Unfortunately, that will never happen in a real world setting. Like all other financial institutions, the Pag-IBIG Fund has to consider a number of factors before granting you the loan. In the past articles we have discussed some of those factors they use to evaluate a loan application, among those are the following:

Your Records with the Pag-IBIG Fund
Employment or Business Status / History Capacity To Pay
Appraised Value of the Property
The Property Itself

By now, you should already realize that just because you are a member of the Pag-IB IG Fund doesn’t mean that getting a housing loan is going to be easy.

In case you are thinking of applying for a housing loan, bear in mind that it could be possible that your loan application could be denied, or you will get an amount that is much lower than you expected. In other words, you don’t get what you want.

This article is meant to guide you on what to do next if the result of your loan application will be negative. To this end, take note of the following tips on what you can do.

Tip #1: Check if The Problem Related To The Property

Obviously, not all properties are equal. Some are good investments, others are just plain crap. Some places are safe to live; others are camping grounds of criminals. Indeed, some are more problematic than others.

You may not know it, but Pag-IBIG is very strict in evaluating a property that you consider buying. It has to undergo a series of rigorous evaluations to see if the property is worth the risk. Remember: the land title will be used as collateral so eventually if it is really a lot of risk, Pag-IBIG will not even consider that property.

Bear in mind that the Pag-IBIG Fund is in the business of real estate loans, not on selling problematic properties.

Tip #2: Get Your Finances In Order

housing loan denied Until now, I’m still shocked to receive comments like, “If I pay the 24 months upfront, can I apply for a housing loan immediately?” It is as if paying the 24 months contribution is the only factor that hinders them from being granted the loan. In reality, paying 24 months is not at all the problem. That’s just a total of P 4,800; even kids can do that.

Instead of putting too much focus on the 24 months contributions, what you should do, if you are really serious about buying a home, is to work on your cash flow. The following should be helpful:

Save enough money for the equity or down payment. This is roughly 20% of the selling price of developer-owned property.
See to it that you can pay for the monthly amortization. That means, work on improving your level of income, which is one of the most important factor affects your loan entitlement.
See to it that you will pay your money dues. Assuming that you can pay, the question is WILL you pay? Once you take on a loan, you better be serious about paying it.

Tip #3: Consider A Cheaper Property

Of course, who doesn’t want to live in a mansion close to the downtown area with all the amenities just close by? That would be very sweet, after all.

But when reality bites as it should, it is best to settle on the one that you can afford to pay. The positive side effect of that decision is that you can sleep soundly at night.

Tip #4: Get A Co-Borrower

If you have some good relatives who are willing to help you out, that would be nice. You can talk to them about becoming your co-borrower. Pag-IBIG allows a maximum of three (3) qualified Pag-IBIG Members to tack in a single loan secured by the same collateral, provided they are related within the second civil degree of consanguinity.

That means they can be your:

Parents
Siblings
Children
Aunts and uncles
Cousins
Grandparents
Grand children

See? That’s a lot of help. But please proceed carefully. This is one of those itchy options that you want to avoid as much as possible.

Tip #5: Try Other Housing Loan Alternatives

Denied a Pag-IBIG Housing Loan?

Relax! Please realize that the world doesn’t stop spinning if you are denied a Pag-IBIG housing loan. There are other alternatives that you may consider such as the following:

Bank Financing
Mortgage Loans From Credit Cooperatives
In-House Financing if the seller itself is also a developer.

For a detailed explanation on this topic, please read the “Pag-IBIG Housing Loan Alternatives” article.

If any of the above still doesn’t work, don’t lose hope. You can always try again next time.

“5 Tips To Take If Your Housing Loan Application Is Denied” is written by Carlos Velasco

Pag-IBIG Loans: Interest Rates, Penalties And Defaults, Part 2 of 2

by Pag-IBIG Financing Admin

This is the second part on this series of articles about the Pag-IBIG Interest rates, penalties and defaults, as the title clear suggests.

In part 1, we mentioned about the going rate of Pag-IBIG Housing Loan. In case you missed it, please click here to read the article.

In this article, we’ll touch on the following subjects:

Housing Loan Re-pricing
Late Payment Penalty on Housing Loan
Interest Rate for Pag-IBIG Multi-purpose Loan (MPL)
Penalty for Late Payment on MPL Loan

These topics will be discussed in the succeeding paragraphs.

Pag-IBIG Housing Loan Repricing

Pag-IBIG Fund says that Housing Loans over 400,000 and up to 3,000,000 is subject to re-pricing every three years at the rate at par with the prevailing market rates. The re-pricing shall be based on the outstanding balance of the loan. The interest rate to be used shall not exceed the following:

Pag-IBIG Housing Loan Repricing Interest Rate

Original Loan Amt	Int. Rate
Over P 400 k to P 750 k	9.00%
Over P 750 k to P 1.0 M	10.50%
Over P 1.0 M to P 1.25 M	11.50%
Over P 1.25M to P 2.0 M	12.50%
Over P 2.0 M to P 3.0 M	13.50%

Question: What about the housing loans P 400,000 and below? Are they going to re-price it also?

Answer: Yes, Pag-IBIG may still reprice the balance every three years, but the rate to be used is still the original rate.

Pag-IBIG Housing Loan Penalty

pag-ibig housing loan repricing rate And what if you miss a single payment?

Pag-IBIG Fund imposes a penalty on non-payment of a full monthly amortization including the other obligations (such as membership contributions, insurance premiums, interest due and principal) which are already tucked into the monthly amortization due. The penalty is set at “1/20 of 1% of the amount due for every day of the delay.”

That’s not much for a single month, but if it becomes a habit, it could lead to a default which will be explained below.

Pag-IBIG Housing Loan Default

When you get a loan, you actually agree to pay all the obligations that go with it. In the case of Pag-IBIG Housing Loan, that means paying the monthly amortization, membership contributions, the insurance and all.

In case you fail to pay three consecutive payment dues, your account is already considered in default. If that happens, the entire balance becomes due and demandable. And since Pag-IBIG Housing loan is secured by the land title, Pag-IBIG will also indorse your property for foreclosure. Plus, it also puts a lien on your TAV – that’s your savings with the Pag-IBIG Fund.

Now the word default is a nasty thing when applied to a housing loan. You want to avoid it as much as possible.

Multi-Purpose Loan Interest Rates

The Pag-IBIG Multi-Purpose Loan is among the cheapest loan available on the market. But this loan depends on the amount you have contributed so far. The longer you have contributed and the bigger the contribution, the more loan money you can get.

As to the interest rate, it is a mere 10.75% per annum at the time of this writing. And you can pay this loan in 24 months time.

Multi-Purpose Loan Penalty For Missed Payment

Small at it may be, for some reasons, some members who availed of the Pag-IBIG MPL Loan miss paying for amount as scheduled. In such cases, the Pag-IBIG Fund imposes a penalty equivalent to 0.5% of the unpaid amount for every month of delay.

If you want to know more about the Pag-IBIG Multi-Purpose Loan, the following articles are very helpful:

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This is the second and final part of a series of articles on Pag-IBIG Loan Interest rates, penalties and defaults. This article is written by Carlos Velasco.

Pag-IBIG Loans: Interest Rates, Penalties And Defaults, Part 1 of 2

by Pag-IBIG Financing Admin

There’s more to loans than just getting the money and paying for it. If you have been a frequent visitor to this website and you are constantly in the look out for new articles, you should already know that Pag-IBIG Loans (both Housing Loan and Multi-Purpose Loan) come with interests.

Borrowing Money Comes With A Price

No one in his “right mind” will take the risk of lending you money knowing that you won’t pay it back! Well, only friends and relatives do that. And I can’t tell you the number of horror stories I’ve heard related to that. Someone puts it best, “A fool and his money are soon parted.”

That’s why banks, non-profit foundations and other lending companies always impose interest on loans. Well, it will not be called a loan if it doesn’t come with an interest.

Going back to the topic, the interest actually serves as an incentive to the one loaning you the money. Think of it this way: When you borrow money from someone, you are actually using his money for your own purpose and the other guy is risking his money to you in the hope of getting a reward as an exchange. In this context, the interest serves as the reward, or incentive for lending you the money.

On the part of the borrower, the interest is also the cost of borrowing the money in the first place. And naturally, the cost of borrowing money is directly affected by three important factors: loan amount, loan term and interest rate.

time value of money -- pag-ibig loans After using the Mortgage Calculator presented here on this website, one visitor concluded as follows: “I see it’s better to buy a property in cash than finance through PAG-IBIG. The interest almost exceed the principal, you can even buy another house with that interest!”

He was right about his observation on the “interest almost exceed the principal“. But if such is the case, why would people still use a Mortgage Loan to finance their property investment? One answer is that, most people can’t afford to pay a house in a single Spot Cash payment.

(See also: Pag-IBIG Housing Loan 101.)

Housing Loan Interest Rates

The Pag-IBIG Housing Loan Interest Rates have been presented here on this website for quite a while already. (As far as I can remember, way back when the site was still in its pre-launch stage.) You can find it at the Right Sidebar of this website, just directly above the Mortgage Calculator.

But for your convenience, and since we are already on this topic, we are presenting them below.

Housing Loan Interest Rates Table

Loan Amt	Int. Rate
Up to P 400 k	6%
Over P 400 k to P 750 k	7%
Over P 750 k to P 1.0 M	8.5%
Over P 1.0 M to P 1.25 M	9.5%
Over P 1.25M to P 2.0 M	10.5%
Over P 2.0 M to P 3.0 M	11.5%

From the table, it is clear that the interest rate for Pag-IBIG Housing Loan is 6% per annum for loan amount of up to P 400,000. And the maximum housing loan amount that you can get from Pag-IBIG is P 3 million with a corresponding interest rate of 11.5% per annum.

Note: The minimum amount that you can get from Pag-IBIG Housing Loan is PhP 100,000.

A reader of this website once dropped us a message: “Is the interest rate of Pag-IBIG Housing Loan fixed for the whole duration of the loan term?”

Good question and every Pag-IBIG Member who plans to avail of the Housing Loan should know about it.

The answer? That’s reserved for the next article of this series, plus the following will also be discussed:

Housing Loan Defaults
Pag-IBIG Multi-Purpose Loan Interest and Penalties

So stay in touch for the part 2 of this series and all the other articles we will be posting soon.

Update Notice: Part 2 has just been posted. Check out to learn more about Housing Loan Repricing, Defaults and Penalties for late payments.

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This is the first part of a two-part series of articles on Pag-IBIG Loan Interest rates, penalties and defaults. This article is written by Carlos Velasco.