A guide to understanding Home Loans

A guide to understanding Home LoansLoans serve as an essential part of our economy. For all but the wealthiest of individuals, loans are thepath to home ownership. After all, not a lot of people have the kind of money to buy a home in cash.Loans can be tricky to understand, with their own set of terminologies. But for those who areintimidated at the thought of owing large sums of money to a bank – a better way to think of a loan isthat it simply serves as a bridge between your future income and the money you need today. The cost ofbeing able to get that future income sooner is charged in interest.If most individuals waited until they had enough money to buy a home outright, lots of Filipinoswouldn’t be able to afford a home until later in their lives. In that sense, a home loan lets you enjoy thebenefits of having your own shelter much earlier in your life.How much can I afford, and how do I know if I can qualify?A good place to start in figuring out how much you can afford is to look at your household income.Banks consider your cash flow and approve based on this. Combine your income with your spouses, orwith your parents, and that number serves as your household income. Banks typically approve homeloans when the monthly payments for the loan do not exceed 30% of your monthly household income.This ensures that the financial burden of making each payment isn’t too great.How do I figure out the monthly payments?Once you have an idea of the kind of home you want, a great way to figure out whether the payments fitwithin the 30% rule is to use online tools like BPI’s Housing Loan Calculator.The calculator allows you to tweak the amounts you’d like to pay as downpayment and also the term ofthe loan. Longer terms mean lower monthly payments, which can help when the monthly paymentstake up too much of your monthly income. Note that longer terms mean greater interest rates, butbanks like BPI give you the option to change the term of the loan as you progress in life and have higherincomes, allowing you to complete the loan sooner.

How do the terms of the loan, the percentage of the downpayment, and the interest rates affect myhome loan?Each bank requires a downpayment as a starter to the loan. This amount is typically 20% of theappraised value of the home. (More on assessed value in the next question.) Once that downpaymenthas been made, the rest of the loan is paid back in monthly contributions, with interest added. Loanscan be repaid in as short as one year, all the way up to 20 years. The secret is finding the right balancebetween the term of the loan, and how much you can comfortably afford to pay each month. BPI’s LoanAccount Officers can help you determine what this sweet spot is.Another thing to note: Interest rates for the term of the loan can either be fixed (meaning they stay thesame for a certain duration – typically one year, five years, or the entire duration of the loan), or can berepriced after a number of years. Fixed interest rates can give you the peace of mind in knowing fromthe start how much the entire loan will cost. In exchange for this peace of mind, interest rates are lockedin at slightly higher rates. On the other hand, interest rates can be allowed to adjust up or down as themarket dictates. If the economy is booming, you can benefit from lower rates. But in the event of acrisis, this can leave you vulnerable to increasing interest rates.How do I determine how much downpayment I need to make?Downpayments for properties are based on the appraised value, and banks only finance up to 80% ofthe appraised value of a property.For properties that are part of a developer project and are accredited by BPI, this appraised value is theselling price, and you can compute downpayment and monthly payments from this.For properties that come from a previous owner or the secondary market, the selling price and theappraised may not always be the same. What happens in this scenario is that banks make their owndetermination of what they think a property is worth, and set downpayment and terms according tothat. So if a previous owner is selling a property for Php 2 million, but a bank appraises it at Php 1.7million, the amount the bank would be willing to finance is 80% (Php 1.36 million). This leaves thedifference (Php 640,000) for you, the buyer, to shoulder.This works both ways: If a property is selling below what the bank appraises it, then you could also endup paying less than 20% of the selling price as a downpayment.

In an age of constantly increasing real estate prices, particularly in Metro Manila, Home Loan Guide arethe practical way to home ownership. As rental rates go up, turning your monthly payments into homeloan payments makes more financial sense. There are still a few more things that go into availing of aloan, but the best place to start is to meet with a loan officer from BPI. Armed with the latest interestrates, exact computations, and detailed knowledge of the process, BPI serves as important resourcetoward owning a home for you and your family.Source: http://bit.ly/1P0aVpE