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Low Home Loan Rates – What You Need to Know Before It’s Too Late

Have you seen the low interest home loans being offered by a few banks out there lately? in 2011, the lowest home loan rate I have seen was 5.99% per year. As I update this, it is now even lower at 5.25%. Personally, I believe these are the best home loan rates I have ever seen in my lifetime. This even beats the 6.0% interest rate offered by the GSIS before.

Note: To find the lowest home loan rates, view our Home Loan Interest rates Comparison Chart

This sounds tempting , not just for real estate investors, but also for home buyers.

But wait, before you apply for a home loan, you need to know that the low interest rate is fixed only for the first year and can be quite risky…

low home loan interest rates

Lower home loan rates mean…

Before I discuss the risks, let me first focus on the positive. Obviously, the biggest impact of having a low interest rate on your home loan would be a significant drop in the monthly amortization payments.

Let’s say you are going to buy a foreclosed property and the loan amount is Php2,000,000. If we use the usual 12% as the annual interest rate, at 10 years to pay, that would mean a monthly amortization of Php28, 694.19. (I used our very own mortgage calculator which can be found here: Home Loan / Mortgage Calculator).

In contrast, if we used an interest rate of 5.25%, using the same loan parameters above, the resulting monthly amortization would be just Php21,458.43. This means a discount of Php7,235.76 per month in monthly amortization payments.

The savings in monthly payments is quite significant right? Imagine if you had several rental properties. This could translate to more positive cashflow.

In addition, I checked one of the banks that offer these low interest rates, and found out that the same rate is also applicable if one wants to refinance a home loan. I was surprised because I was expecting different home loan refinance rates.

This could be useful for real estate investors who want to get some cash out of their equity through refinancing, provided they are in good standing. I guess getting a new home loan for people with bad credit is out of the question.

Here’s the fine print

As with most things, there’s a fine print. In this case, the low interest rate is only fixed for the first year, and is subject to yearly repricing thereafter. This means that after the first year, one is at the mercy of interest rate fluctuations.

What if there was another financial crisis (knock on wood), and interest rates suddenly went up?! If that happens, there would be an increase in the interest rate to be used come repricing time, and would result in a corresponding increase in the monthly amortization payments.

By the way, some banks also offer some form of rate protection where the increase of the interest rate is limited to 2%. This is similar to the practice of Pag-IBIG. However, if one chose the option to have the interest rate fixed for only a year, it’s possible that the interest rate will be increased yearly right?

Scenarios

If you are a real estate investor and have rental properties purchased through home loans, the increase in monthly amortization payments can turn a nice positive cashflow generating property into one that is negatively geared, which is like a money pit. It can swallow up all of your money.

To illustrate, if interest rates jumped to 20%, the monthly payment for the example above would become a staggering Php38,651.13 per month. This is really possible and has actually happened during the Asian financial crisis in 1997 when the interest rates exceeded 20%. It is well-settled that history repeats itself, and real estate is cyclical, so it is possible that this will happen again.

BSP Interest Rates History

Raising rents to cover the additional monthly payments can only work up to a certain extent and may not be enough, especially if a property is covered by the rent control law. Besides, market forces dictate rental rates and increasing it might drive tenants away, making the situation worse.

The same applies to non-investors. Unless one’s source of income, which is usually just one’s salary, more than covers any sudden increase in the monthly amortization payments, he is in danger of defaulting on his mortgage loan payments. A salary increase would help, but usually the opposite happens during bad times as businesses also try to save on expenses.

This can even lead to foreclosure down the road. In such harsh economic conditions during a financial crisis, the usual steps one can take to avoid foreclosure may offer little help and not work at all.

Nevertheless, I believe that the scenarios described above can be easily avoided by simply going for fixed interest rates.

Why go for fixed interest rates?

I believe that the proactive thing to do would be to go for fixed interest rates for the longest term possible. This eliminates the risk of being subject to sudden interest rate fluctuations, all throughout the loan term.

Sure, the interest rates usually become higher, the longer they are fixed, but at least, you are protected just in case prevailing interest rates shoot up due to economic conditions.

Anyway, If you are really concerned about the higher fixed interest rates for longer terms, my suggestion would be to have something in the middle, let’s say 5 years for example, provided you are prepared to have the loan fully paid before the end of the 5th year, if needed.

This seems to be a more balanced approach as you still get protection, but the interest rate at the start should not be too high.

What the heck, if you believe you can pay in full for a property in one year, then by all means, go for the lowest home loan rate you can find, even if it is just fixed for a year.

My point is simple, I suggest going for a fixed interest rate, with the longest term possible, so that at the very least, you will have enough time to pay-off the home loan to avoid any repricing, if interest rates really do go up.

This will help minimize your risks, and have peace of mind, which I believe is priceless.

Happy investing!

To our success and financial freedom!

Jay Castillo
Real Estate Investor
Real Estate Broker License #:
3194
Blog: https://www.foreclosurephilippines.com
Follow me in Twitter: http://twitter.com/jay_castillo
Find us in Facebook: Foreclosure Investing Philippines facebook page

Text by Jay Castillo and Cherry Castillo. Copyright © 2014 All rights reserved.

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66 thoughts on “Low Home Loan Rates – What You Need to Know Before It’s Too Late”

  1. Pingback: Security Bank's 6 for 5 Home Loan Promo Extended To June 15, 2017

  2. Pingback: How To Proactively Prevent Foreclosures (and NOT lose everything) - Part 2

  3. Hi Jay

    I just want to ask , how to get a loan from the bank to build a property? And which bank offering low interest rate ? thank you

  4. hi sir jay, i have a 10 years existing home loan from a certain bank, i already paid for about 5 years, is it possible to pay the remaining in full, as in prepay? will it lower the interest? will it be adjusted? would it cost me?

  5. Hi Sir jay!

    What is the current repricing rate/fixed rate for the existing home loan borrower on the different banks now? especially rcbs, pnb and bdo.

    – Xale

  6. Hi Sir jay!

    What is the current repricing rate/fixed rate for the existing home loan borrower on the different banks now? especially rcbs, pnb and bdo.

  7. Pingback: Home Loans In The Philippines Interest Rates (FEB 2015)

  8. Geraldine Magbojos

    Hi Sir Jay, i am about to start my bank loan for house and lot and thinking of what bank is better for it, BDO or Bank of Commerce. Based on housing developers list, BOC offers 8.25% interest rate for 15years payment term while BDO offers 11.25% interest rate and we all know that there’s no such term as fixed rate. Interest rates may fluctuate, so based on your analysis of banking strategies, which is better BDO or BOC? Thanks! Geraldine

  9. Hi Sir Jay,

    I just want to know how does the bank guaranty applies to the developer, do we have to stop our monthly amortization payments since the bank had already forwarded a bank approval letter. (take note that we have paid the down payment already) I know that transfer of title procedures would take time and the developer told me that it would take 3-4 months. I’m thinking sayang ung 3-4 months payments with interest under in-house financing scheme.

  10. Hi Sir Jay,

    Been reading your blog for months now and I find it very helpful and informative.
    Just need your enlightenment with our current situation.My husband and I purchased lot in a subdivision. We have it fully paid last June 2012 but until now (2015 ) the title is not yet given to us. We also paid them the title processing fee last September 2014.

    All we got from the developer are empty promises.
    What are the actions that we can take for them to process our lot title quicker.

  11. hi jay. thank you for your web site. it really helps… i have a residential lot i wanted to acquire. its a 150 sq metrs. the owner sells it at 800k. i have only 300k. any idea where i can borrow the 500K? personnal loan? boboy.

  12. Mary Jane Sumilang

    Hi jay.
    We are planning to apply for a house loan in bdo. We are ok with requirements and all. But our problem is that our title has a stamp republic act no. 26 which according to a lawyer we need to have it cancelled first. Will it bw the same with the banks?
    My worry is that instead of paying the 3500 immediately we might as well pay it for cancellation then proceed with pagibig loan instead. Do you wncounter a case like this?
    I hope you will be able to help me. Thanks

  13. Hi Sir Jay, i was planning to get a house cost 2.1M my monthly income is 50k, and im willing to pay the 20% downpayment on the spot. But i was told that i cannot apply the housing loan on my own bank which is BPI. Because they said they have tied already with PS Bank. Will the bank can offer me to shorten the payment to 10yrs.? also if i have some extra income can i pay more than my monthly amortization to shorten my payment years? Im kinda new to this things i hope you can enlighten me more on waht the things i need to do. Thanks in advance : )

    1. Hi Dina, usually once the sale is consumated, you start your monthly amortizations, regardless of whether you have moved in or not.

  14. David Michael V. Padua

    Hi Jay…Very nice Article. I Just got a 20yr housing loan through BPI with a 5yr fixed rate of 6.5%. But I have a Question: There is this new promo of Veterans Bank known as HOME LOAN-FREE HOME –> Your Principal Loan back to you 100%! Here’s their site: http://www.pvbhomeloans.com/ – Their promo is only open for two months (Mar 1 to May 31st). Their 5-yr fixed interest is at 8.25%.

    I need your advise if this is a good promo by Veterans Bank? I couldn’t believe it at first, but this is really true. 🙂

  15. Pingback: Table of amortization factors updated with low home loan rates

  16. hi sir jay!I am a newbie on real estate investment.I have a concern regarding my plan to build and sell.I have a raw lot and I want to build a house through housing loan from ucpb which has a 6% interest rate per annum.The manager said that they can allow me to borrow up to 1.5M for the refinancing and construction.What can you say about my plan?is it good for a newbie to start with?thanks!

    1. Hi Elaine, build-and-sell is a good investment strategy, although I have not tried it yet myself, but we plan to do so soon.

      As long as the numbers make sense, it would a good way to start. Just make sure you have cash reserves and the location is really good and the newly built properties can be sold quickly.

  17. Can a bad credit score that was listed 1999 will affect my chance of getting an approved home loan? Can my name be cleared? I already settled and it was dismissed by the court already. I have clearnce now. . It was a bounced chk. It was a mistake, i was young then. how can i rebuild my credit score?

    1. Hi Ella, I believe you can have this checked for you. No harm in having it checked to make sure your credit standing is already okay.

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