Buying a home is a huge financial undertaking, and for many, it is the biggest they will take on in their life. A home loan, or mortgage, makes the process easier – it grants borrowers access to funds for buying or building a house and allows them to return the money, plus interest, in instalments over a set period of time.
In this article, we’ll cover the basics of getting a home loan in the Philippines.
Terms to know
- Loanable amount – the amount that can be borrowed; in the Philippines, borrowers can usually apply for a loan amounting to up to 80% of the appraised value of the property; minimum and maximum loanable amounts vary from lender to lender
- Loan tenor/term – also known as the loan repayment period is the period of time within which a borrower has to repay a loan
- Interest rate – a percentage of the total loan amount paid on top of the borrowed amount; the cost of borrowing money
- Amortization – paying off a loan in regular (usually monthly) installments over a fixed period of time; the amount paid includes both principal and interest
- Fixed pricing period/fixing period – the period of time within which the interest rate will remain the same; after this period, the interest rate may increase or decrease depending on market conditions.
Shorter fixing periods generally come with lower interest rates; conversely, longer fixing periods usually come with higher rates. One can think about it as paying more for the certainty that your payments will remain constant for longer.
- Default – the failure to repay a loan
- Collateral – an asset (in home loans, the collateral is the property itself) used by the lender to secure a loan; in case of default, the lender will seize the collateral
- Refinancing – the process of taking out a new loan to pay off the original loan, usually with the goal of obtaining a more favorable loan term and/or interest rate.
- Margin of financing – the percentage of the total cost of the property that the lender is willing to finance for a home loan.
- Prepayment – paying off a home loan before the end of the loan tenure.
- Down Payment – an initial payment made at the time of the home loan agreement, typically a percentage of the total loan amount.
- Credit Score – a numerical representation of an individual’s creditworthiness, used by lenders to evaluate home loan applications.
- Co-borrower – a person who joins the borrower in applying for the home loan and is jointly responsible for paying back the loan.
- Guarantor – a person who acts as a secondary borrower and takes responsibility for the home loan in case the primary borrower is unable to repay it.
- Insurance – coverage for the home loan and the property in case of any unforeseen events.
- Appraisal – a professional evaluation of the property, used to determine its value for home loan purposes.
- Closing costs – expenses incurred during the process of purchasing a property and obtaining a home loan, such as legal fees and taxes.
- Equity – the difference between the property’s value and the outstanding home loan balance.
- Escrow – a financial arrangement where a third party holds and regulates payment of the funds required for two parties involved in a given transaction.
- Title – a legal document that proves ownership of a property.
- Principal – refers to the original amount of money that is borrowed. It is the amount of the loan that is used to purchase the property and does not include any interest or other fees. The principal is the amount that the borrower is responsible for repaying to the lender.
- Grace period – is a specific period of time during which a borrower is not required to make loan payments, but interest will continue to accrue.
- Gross Income – refers to the total amount of money earned before any deductions or taxes are taken out. It includes all forms of income such as salary, wages, bonuses, commission, and any other income sources.
- Secured loan – a type of loan that is backed by some form of collateral. In the context of home loans, the collateral is typically the property that is being purchased.
- Unsecured loan – a type of loan that does not require any collateral to be pledged as security for the loan. This means that the borrower does not have to put up any assets such as property or a car as collateral to obtain the loan.
Maria Papa is a senior property and finance expert specialising in home loans, investment loans, and self-employed loans. If you have questions, you can email Maria at mpapa@maverickfinance.com.au.
Disclaimer: Your full financial situation will need to be reviewed prior to acceptance of any offer or product.
