#pinoy

Housing loans made easier for Filipinos

Manila halves requirements to 7 from 14; Pag-IBIG cuts mortgage rates; expats allowed 100% ownership of units in high-rises

15:28 September 23, 2018

Dubai: The Philippines' Home Mutual Development Fund (HMDF), also known as Pag-IBIG, has reduced home mortgate rate to 5.375  per cent per annum, it was announced on a Facebook post on Thursday.

It's the lowest rate offered by the state-owned fund so far, and works for members taking out regular housing loans — but not for expats who can nevertheless own 100% of units in high-rises outright or get financing from Philippine banks.

A borrower can also apply for maximum loanable amount of Php6 million (about Dh407,285). Moreover, documentary requirements were also further reduced — from 14 to just seven — under the "build-build-build" mantra of the Duterte administration.

And, unlike commercial banks, Pag-IBIG offers a 30-year payment period, the longest in the Philippines.

The reduced Pag-IBIG rate and streamlined documentation are aimed not only at easing borrowers' burden, but also curbing bureaucracy, boosting housing  and the industries that thrive off it. 

The reduction was initially announced in July 1, 2018. Now, would Pag-IBIG's move spur a mortgage rates war? Only time will tel —  but any rate reduction is always good for borrowers. 

#Pinoy note: Pag-IBIG's new rate is not the lowest in the Philippines (other commercial banks offer mortgage rates at 4.99% for up to Php2 million (about Dh138,000 or about $38,000), but that only applies for Year 1.

Subsequent years could follow a "floating rate" system (see Question #9). 

[Low-income earners can apply via affordable housing loan programme: only a 3 per cent rate will be levied on those who earn 15,000 pesos (Dh1,018) or less per month. Loanable amount was also raised to Php750,000, from Php450,000, a change also announced on Thursday.] 

Paper requirements had also been streamlined: If you found Pag-IBIG too punishing with papers in the past, it's now been cut by half — to seven from the previous 14.

 Disclaimer:  This article is meant as a general guide for overseas Filipino workers (OFWs) and regular Fund members. For specific queries, please refer to a Pag-Ibig officer near you or the relevant desk at the Philippine embassy/consulate.

1. What is Pag-IBIG?

It is the state-owned housing arm of the Philippines government. It stands for "Pagtutulungan sa Kinabukasan: Ikaw, Bangko, Industriya at Gobyerno". Formally known as the Home Mutual Development (HMDF), Pag-Ibig was established on June 11, 1978 to create a national savings program and an affordable shelter financing for Filipino workers.  

2. Is Pag-IBIG membership mandatory?

Yes and No. Yes, because Pag-Ibig membership is mandatory for all Social Security System (SSS) and Government Service Insurance System (GSIS) member-employees. It is also mandatory for Overseas Filipino Workers (OFWs).

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But NO, as there currently exists no mechanism to compel OFWs to regularise their status as Pag-IBIG members.

OFWs can fly out of the country as long as they can present their overseas employment certificate (OEC) and are updated with their Overseas Workers Welfare Administration (OWWA) membership. 

OFWs need need not pay even the minimum Pag-IBIG membership dues of Php200 per month. So it's compulsory only on paper — for now.

3. Did Pag-IBIG really reduce the number of requirements to avail of a housing loan?

Yes, the fund has simplified the requirements from 14 to 7 — and also cut the home loan rates to encourage members to grab its services, Lowella Recto, Pag-IBIG overseas representative in Dubai, told Gulf News. 

4. What is a housing loan?

A housing loan is a debt acquired to purchase property. "Mortgage" is another term for housing loan. In general, Filipinos have two options for housing loans: public (via Pag-IBIG, SSS and GSIS), and private, via banks.

There are also cooperatives that offer housing loans, but these have yet to catch traction. 

5. What is the difference between a commercial bank, SSS, and Pag-IBIG housing loans?

For most Filipinos, purchasing a home is one of the biggest purchases of a lifetime. For many, this can only be made possible by taking out financing.

Deciding which financing option is best for you can be a daunting. Banks, due to competition, are normally quite helpful and will go the extra mile to accomodate you.

A key differentiator, until recently, is that commercial lenders tend to require less paperwork, charge less mortgate rate during the first year, and are more proactive.

Those who work for government housing lenders, like Pag-IBIG and SSS, do take their time and require too many papers.

But this is changing. 

6. Where can I apply for a Pag-IBIG housing loan?

Pag-IBIG has dozens of posts, including two in the UAE. Its corporate headquarters, support services and housing group are in Makati, Manila, which has 30 desks for members. It also has 30 branches in the National Capital Region, 29 in Luzon, 20 in Visayas, 21 in Mindanao and 30 overseas posts.

7. What is a mortgage rate?

A lender usually charges an amount, called an "interest", on top of the borrowed amount (principal). This rate is the amount charged for the use of the principal, also called "cost of money".

All commercial banks or government institutions charge varying mortgage rates. 

In a typical mortgage, you pay the estimated monthly installments for the loan until both the loan principal and interest are paid. 

Here's a tip: Since your interest payment is calculated based on the remaining principal at the end of each month, by paying a little bit extra each month, the interest in subsequent months will be lower.

8. What is a good formula to calculate monthly mortgage payments?

Say, you want to take out a home loan amounting to Php2.4 million pesos with a rate of 5.325 per cent, payable in 15 years. Using Excel for PC or Numbers in MacOS, just write this in one cell "=PMT(0.05325/12,180,-2400000)". The answer should be Php19,233.07 (the monthly payment).

For a loan worth Php1.5 million at a rate of 5.5% payable in 10 years, type this in a cell: "=PMT(0.055/12,120,-1500000). The result should be Php16,278, that's your estimated monthly payment.  

Pag-IBIG Fund Housing Loan Affordability Calculator

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Please note: These are only indicative figures all based on constant payments and constant interest rate. 

The devil with a loan mortgage in the Philippines is in the detail, due to the "floating rate" system beyond Year 1.

9. What is floating rate?

This depends on inflation and BSP (Bangko Sentral ng Pilipinas) policy rates. Borrowers who sign up to low payments with fixed rates for Year 1 will be affected by inflation and a possible hike in BSP’s key rates, which results in a rate "re-pricing".

Many banks, have adopted this trend by offering lower  interest rates 4.99% or 5.25%, initially.

While reduced mortgage rates are good, know that these are actually "bait" or only “teaser” rates — good for 1 year since there will be a re-pricing from the 13th month, or the second year.

Keep in mind that since these rates are not fixed, the annual re-pricing makes calculations a bit dicey.

The floating rate varies and the yearly adjustments might end up being higher than the previous year.

Below is an indicator of current rates for a typical Php1 million housing loan currently offered by commercial banks. This only applies to Year 1.

10. What is refinancing?

It is the buyout of your existing housing loan by another lender (bank or financial institutions like SSS or Pag-IBIG, or GSIS).

This is increasingly being opted by people who are looking for better — lower — rates offered during the remaining period of the loan. Many borrowers are taking this option, also known as loan "buyout", these days in order to take advantage of the greater competition in the market.

11. Which one is easier: Pag-Ibig housing loan or commercial banking loan?

It depends on your need. Generally, housing loans offered by banks bear a bit lower interest rate than Pag-IBIG. 

Though this could no longer be the case — with the much lower rate announced on Thursday. 

Moreover, know that the commercial banks' "published" rates tend to cover only the first year of repayment, while the rest could follow a "floating rate" system.

With Pag-Ibig, the published rate covers 3 years, though the one announced on Thursday (September 20) has a footnote stating the lower rate only applies to Year 1. If you do apply, clarify this point.

But with the lower rates just announced, it's now clear Pag-IBIG is going head to head with commercial lenders. 

12. I am an OFW, why should I join Pag-IBIG when I don't have plans to take out a housing loan? 

You could turn your contributions into an asset. With Pag-IBIG Fund, you can use your contributions to save, with tax-free earning.

As a state-controlled fund, covered by taxpayers' money in case of bankruptcy, your contributions to this fund is secure. It is as secure as the funds of any government-owned and controlled corporations, such as the SSS and GSIS.

13. How much is the interest on Pag-IBIG contributions?

With the traditional Pag-Ibig I, the guaranteed rate of return in 4 per cent per annum. With Pag-IBIG 2 (also known as MP2) programme, the rate is much higher, about the same as Trust Funds being offered by banks.

14. What's in it for me if I sign up with Pag-IBIG?

The biggest upside is that your investment/savings with Pag-ibig is state-guaranteed. This means: even if the government changes every year, your money is safe as it is guaranteed by Filipino tax-payers.

Another benefit: your earnings are tax-free. 

You can borrow money to (1) buy a lot; (2) buy a ready house-and-lot unit; (3) a condo unit; or (4) build a house on a lot registered in your name.

15. How much should I contribute? 

Php200 (Dh13.8) is the minimum monthly contribution to Pag-IBIG. If you're an OFW, you may opt to give a bigger monthly contribution.

You must have at least 24 monthly contributions in order to avail of a loan. This can also be paid in lump sum. 

16. What if I paid my 24 months contribution but stopped many years ago?

You must reactivate your Pag-Ibig membership by paying at least the last 3 months to qualify for a mortgage loan.

17. What if I am buying from a housing developer?

There are two (2) modes of applying: (a) Developer-Assisted, where the developer assists the member in his/her housing loan application, and (b) Retail, where the member applies directly to the Fund.

18. What are the requirements to avail of a loan for the purchase of lot or residential unit?

(a) Housing Loan Application with recent ID photo of borrower/co-borrower (if applicable) (2 copies, HQP-HLF068/069);
(b) Proof of Income;
(c) One valid ID (Photocopy, back-to-back) of Principal Borrower and Spouse, Co-Borrower and Spouse, Seller and Spouse and Developer’s Authorized Representative and Attorney-In-Fact, if applicable;
(d) Transfer Certificate of Title (TCT) (latest title, Certified True Copy). For Condominium Unit, present TCT of the land and Condominium Certificate of Title (CCT) (Certified True Copy);
(e) Updated Tax Declaration (House and Lot) and Updated Real Estate Tax Receipt (photocopy);
(f) Contract-to-Sell or similar agreement between the buyer and seller; and 
(g) Vicinity Map/Sketch of the Property

Here's the checklist of requirements for purchase of lot/residential unit under retail accounts.

19. What are the requirements for Pag-Ibig loan for house construction or home improvement?

(a) Housing Loan Application with recent ID photo of borrower/co-borrower (if applicable) (2 copies, HQP-HLF068/069);
(b) Proof of Income;
(c) One (1) valid ID (Photocopy, back-to-back) of Principal Borrower and Spouse, Co-Borrower and Spouse, and owner of title (for accommodation mortgage), if applicable;
(d) Transfer Certificate of Title (TCT) (latest title, Certified True Copy). For Condominium Unit, present TCT of the land and Condominium Certificate of Title (CCT) (Certified True Copy);
(e) Updated Tax Declaration (House and Lot) and Updated Real Estate Tax Receipt (photocopy);
(f) Building Plans, Specification with Bill of Materials duly signed by the Licensed Civil Engineer or Architect;
(g) Vicinity Map/Sketch of the Property

Heres' the checklist for Construction of House/Home Improvement

20. How much is the processing fee?

Php1,000 is charged upon filing of housing loan application with required documents (non-refundable).

Moreover, an Php2,000 appraisal fee is charged upon filing of loan application (also non-refundable). Another P2,000 fee is levied upon take-out (this deducted from the loan proceeds).

21. What are the procedures for house construction or home improvement (repair)?

Upon utilisation of at least 90% of the previous release, you must coordinate (by phone or personal visit) with the assigned officer (Property Appraiser II of the Property Valuation Division-Appraisal Department/Housing Loans Division, at you regional branch) for the schedule of inspection.

Within 5 working days from filing your request, the Property Valuation Division-Appraisal Department/Housing Loans Division-Regional Branch shall conduct inspection of the property.

The member-applicant will then receive a telephone call regarding the cheque availability and must present 2 valid IDs to get the cheque, which will be released by the cheque release controller.

22. How much is the interest rate and the maximum amount I can borrow?

Pag-Ibig's Affordable Housing Loan Program (AHLP) now charges 3 per cent per annum — lowest in the country. Under the fund's AHLP, you can apply for a maximum of Php750,000, and pay as low as Php2,280 per month amortisation. Please note that most active OFWs do not qualify for AHLP.

23. Can Pag-IBIG loan be used for agricultural or commercial purposes?

No. 

24. How long is the maximum loan term?

The maximum loan term is 30 years (360 months), but payment period is assessed depending on the borrower's age. 

25. I'm an OFW and away from the Philippines. What do I need to do to apply for a Pag-Ibig loan at home?

For OFW members, you must accomplish a Special Power of Attorney (SPA) notarized prior to the date of your departure. 

If you are already abroad, you need an SPA notarised by a Philippine Consular Officer, or an SPA notarised by a local notary (of the country where you are working), but it must be authenticated by the Philippine Consulate.

The Fund may also require any or a combination of the following documents: Payslip indicating income received and period covered; Valid OWWA Membership Certificate; Overseas Employment Certificate; Passport with appropriate visa (Working Visa); Residence card/permit (permit to stay indicating work as the purpose); Bank remittance record; Professional License issued by Host Country/Government.

And if documents are in foreign language/s, English translation is required.

26. Can I apply for more than one housing loan?

Yes, as long as the total value of these loans (balance of existing housing loans and the loable amount for the new loan), should not exceed Php6 million.

27. What if I have an existing loan?

If a member is named as a co-borrower of an existing loan, his share of the outstanding balance will be included in the computation of the total loan value.

28. What about insurance?

If you are an OFW borrower over 60 years old, fill up a Health Statement Form (Medical Questionnaire) and provide a copy of the result of medical examination conducted prior to assignment overseas as required by the employment agency.

29. Can I pay my loan in advance?

Yes. And if you do, any extra amount (say 20,000 pesos or more) applied to the principal will not not slapped an early-settlement fee by the Fund. It shortens the payment period and helps you avoid interest payments too.

BONUS: How can I avoid a heart attack from "floating rate". 

If you want to avoid rate “repricing” or "floating rate", opt for a longer lock-in period. Also known as “fixed-price period”, it's a contract with Pag-IBIG (or commercial banks) stating how long you want to lock in a given rate.

Fixed rate over a longer period is usually higher than the advertised "bait" rate, which only covers Year 1.

With Pag-IBIG, for example, a 20-year fixed rate for a housing loan is 8.800%. It means: even if interest rates rise, your home loan rate of 8.8% is locked in for 20 years, saving you much heartache if mortgage rates do rise.
 
A higher rate usually applies following repricing.

 Tip:  Opt for longer fixed-rate period. This would help you avoid the possibility of loan default due to a repriced, and possibly higher, monthly amortisation.

With Pag-IBIG, a 10-year lock-in period is 8.035% per annum. With BDO, Metrobank, ChinaBank and PNB, a 10-year lock in currently at 8.5 per cent. BPI is a bit lower at 7.5% at the moment. These rates may change, so check with your mortgage provider when you apply.


CASE STUDY

Here’s one case that shows how a floating rate in the Philippines can, literally, trigger a heart ailment.

Zenny (name changed upon request), a Filipina housemaid for 23 years in the UAE, dreamt of having her own house. In 2015, she applied for a home mortgage amounting to Php1.6 million offered by a Philippine commercial bank.

The list price of the 2BR house she bought in a Manila suburb is Php1.8 million (about Dh122,185). Her loan was approved in a flash, after she raised the Php280,000 downpayment.

The bank told her the interest rates was an "affordable" 5.5 per cent. “I was happy with the idea," said Zeny. "To have a dream house gave me a sense of accomplishment.”

Little did she know — neither was it clearly explained to her by the property agent — that her happiness ends after Year 1.

From August 2016, the rate went up to 6.38%: Zeny was paying Php14,900 per month; From July 2017, the rate "floated" even higher at 9.26%.

Zeny's heart sank, as she was made to pay 17,199.38  per month.

From July 2018, it went up even more to 11.14% — Zeny had to pay Php18,700 per month.

“As a a housemaid with limited means, it felt like the bank was trying to strangle me,” Zeny told Gulf News. “Bumababa ang utang ko kasi nagbabayad naman walang palya, pero bakit tumataas ang bayad kada taon parang lobo?” ("I pay religiously every month. But the following year, the amortisation gets bigger like a balloon").

Zeny, 45, said she’s on medication for her heart condition. “Di na sila naawa sa malilit. Kada taon, tumataas pag tinitingnan ko ang notice nila. Para akong aatakehin sa puso. Parang walang awa ang bangko.” (Every year, I am afraid I’d get a heart attack whenever I check my mortgage rate notice from the bank. The bank is just merciless).”
 

(With inputs from Christian Borbon, Web Producer)