Monday, February 24, 2014

Types of home loans explained

Buying a home is a big step and an equally big investment that may change your financial situation permanently. Making the right decisions when it comes to financing your property is key to having a stable financial life with manageable debt. A practical solution to financing is acquiring a home loan from a bank. Generally, there are two types of home loans available in Philippine banks, namely the conventional housing loan and the flexible home loan. Know the difference between the two and figure out which best suits your needs...

The flexible home loan offers a more flexible method of payment. Your loan will be linked to your current account, where you can deposit your payments.

Conventional housing loan

The conventional housing loan has a settlement period wherein the borrower can pay back the amount with interest on a monthly basis. Interest rates vary depending on the bank and are affected by several factors such as the Bangko Sentral ng Pilipinas (BSP) key rates, inflation rates, and supply and demand. The interest rate may also be fixed or variable. A settlement period of 20 years is usually available for loans amounting to at least Php 500 000. The conventional housing loan is the type of loan more commonly availed by homeowners in the Philippines. 

Flexible home loan

On the other hand, the flexible home loan offers a more flexible method of payment. Your loan will be linked to your current account, where you can deposit your payments, as monthly installments will be automatically deducted from this linked account. You may pay more if you wish and may also withdraw excess payments as your financial situation changes. 

Whichever type of loan you choose, be mindful of interest rates and lock-in rates. Low interest rates are attractive, but these are usually fixed for a short term and are subject to annual re-pricing thereafter. The lock-in rate is the penalty charged to a borrower if he has fully paid his debt before the maturity date.


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