Pag-IBIG or Bank Loan: Which Is the Better Housing Loan?

Before any aspiring homeowner can secure a loan, it’s essential to evaluate which provider is the most suitable given their respective terms and conditions. Both the Pag-IBIG housing loan process and bank loan process require a list of qualifications before you can take out a loan for a specific purpose at a given interest rate and amount.

When purchasing a new home, not everyone is financially capable of paying for it outright. For many, it is a relief that various government and private institutions offer different housing loans that will make the dream of home-ownership easier. To buyers these days, two of the most common types of loans are obtained through the Pag-IBIG Fund (or Home Development Mutual Fund) or commercial banks.

The question of which housing loan provider to go for depends on your specific needs; usually, the budget and the desire for longer payment terms play a big part in deciding between the two loan options. To zero in on the ideal provider for you, analyze your situation based on the loan’s various characteristics. You need to take into account the qualifications you need to meet, the various uses of the loan, interest rates, the minimum loanable amount, and the loan term.

I. Qualifications

To qualify for a Pag-IBIG Fund housing loan, one must meet the following requirements:

1  Be a Pag-IBIG Fund member who has made 24 consecutive monthly payments (or pay a lump sum that is equal to 24 monthly payments)
2  Be no more than 65 years old on the date of the application, and not over 70 years old at loan maturity
3  Be legally able to acquire and encumber real property
4  Pass background/credit and employment/business checks
5  Have no housing loan from Pag-IBIG that has been cancelled, foreclosed, subject to dacion en pago, or bought back due to default

Bank housing loan applicants, on the other hand, are usually required to meet the following requirements:

1  Be 21 years old at the time of loan application and not more than 65 years old at loan maturity
2  Be a Filipino citizen
3  Salaried or self-employed
4  Should have a minimum gross family income of Php30,000

II. Loan Purpose (Home Purchase, Construction, etc.)

With the Pag-IBIG housing loan, you can:

1  Purchase a fully developed lot (maximum of 1,000 sqm) within a residential area
2  Purchase a house and lot, condo unit, or townhouse with a parking slot
3  Build a residential house to be owned by you
4  Improve your current home
5  Refinance a mortgage as long as the loan is not in default within a year before the application date, and the loan should have a repayment history of at least 2 years with the original mortgagee
6  Combine 1 and 3, 2 and 4, 4 and 5, or refinance a lot purchased for the construction of a home

For a bank loan:

Usually, bank home loans can be used for the same purposes as Pag-IBIG. Philippine National Bank (PNB), for instance, lists these as the purposes of their Sure Home Housing Loan:

1  The purchase an existing residential property (house and lot, condo unit, or townhouse)
2  The takeout of an existing housing loan
3  The renovation of an existing home
4  The construction of a house
5  Reimbursement or refinancing of a residential property

III. Interest Rate

Pag-IBIG housing loan:

On June 1, 2015, the Pag-IBIG Fund decreased their interest rates to encourage more members to make use of housing loans. The new rates are the following:

Table 1

Just this July, they announced their lowest rate ever of 5.5 percent per annum.

Bank loan:

When borrowing from a bank, interest rates are slightly lower. Banco De Oro (BDO) and Metrobank both offer 5.5 percent for the first year, which is the same as Pag-IBIG. In the years following this, their rates range from 6.25 to 6.50 percent for a fixing period of 3 years; 6.88 percent for 5 years, 8 to 8.5 percent for 6-10 years; and 11.5 to 12.5 percent for 16-20 years. Yearly repricing rate for existing borrowers starts at 7 percent per annum. Security Bank Home Loan offers some of the lowest rates, with 5.25 percent fixed for one year and 6.25 percent for 2-3 years.

Yearly repricing rates for existing borrowers could start at 7 percent per annum.

IV. Loanable Amount

Pag-IBIG housing loan:

Pag-IBIG members are now allowed to take out multiple loans up to Php6 million subject to three conditions: their actual need for the funds, their capacity to pay, and the loan-to appraisal value ratio. Also, if a member is named a co-borrower of an existing loan, they can apply for a new housing loan under the said guidelines, but their total loan value will include the outstanding balance of their existing loan.

Bank loan:

As for banks, the minimum loanable amount might start at Php300,000, as in the case of RCBC Savings Bank’s Housing Loan. Sometimes, the amount might be different for properties within Metro Manila and for those located outside, as in the case of PNB’s home loan. The maximum loanable amount depends on several factors, including capacity to pay, proposed collateral, and the appraised value of the property to be purchased. With BPI Housing Loan, you can borrow up to 80% of the appraised value of a home as long as it does not exceed Php5 million.

V. Terms

Pag-IBIG Fund members can pay off their housing loan for as long as 30 years.

Generally, banks offer loan terms of up to 20 to 25 years, but in some cases, the term might depend on the purpose of the loan. For instance, PNB allows borrowers a maximum of 20 years if the loan is to be used for the purchase of a house and lot, townhouse, condo unit, or for the construction of a house; and only 10 years if the loan is to be used for buying a vacant lot or for home improvement.

Buying a home using a housing loan is the easiest way to transition from renter to owner, but as with all major financial decisions, a lot of considerations need to be taken. Both the Pag-IBIG Fund and banks have their benefits and downsides, but depending on your particular situation, you are bound to find the ideal set-up for you after weighing up your options.

Note: Although much effort has been made in the creation of this guide, Lamudi Philippines advises homebuyers to always consult with loan officers and real estate professionals.

Sources: bdo.com.ph, bpihousingloans.com, pagibigfund.gov.ph, philstar.com, pnb.com.ph, rcbcsavings.com, securitybank.com

Main photo via Shutterstock

 

For a comprehensive guide on the rules, regulations, and functions of the Home Development Mutual Fund, as well as additional articles related to the HDMF, visit the Lamudi Pag-IBIG Fund page.

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