Which is Better: Bank vs Pag-IBIG Financing in Buying a House in the Philippines?
Buying a house in the Philippines is a significant financial decision, and choosing the right financing option is crucial. Two popular choices for home financing are bank loans and Pag-IBIG loans. In this article, we will explore the differences between these two options, including their pros and cons, qualification requirements, loan purposes, and interest rates. By the end, you’ll have a clearer understanding of which is better: Bank vs Pag-IBIG financing in buying a house in the Philippines.
Main Difference Between Pag-IBIG and Bank Loans
The primary difference between Pag-IBIG and bank loans is the maximum loanable amount. Pag-IBIG has a maximum loanable amount of 6 million pesos, making it suitable for more affordable homes or those with lower borrowing needs. On the other hand, banks do not have a fixed maximum loanable amount, allowing for more flexibility and the ability to finance higher-value properties.
Pros and Cons of Pag-IBIG Loans
Pros of Pag-IBIG
Pag-IBIG loans offer lower interest rates and longer repayment periods, with terms extending up to 30 years. This can significantly reduce monthly payments, making homeownership more accessible. Additionally, with Pag-IBIG loans, you can get anyone to be your co-borrower as long as they have a Pag-IBIG membership. If they’re currently not a Pag-IBIG member, then you can have them apply as a member and pay 24 months worth of membership one time so they can be eligible.
Cons of Pag-IBIG
However, Pag-IBIG’s maximum loanable amount of 6 million pesos may not be sufficient for higher-value properties. The qualification criteria are also more stringent (they have more requirements compared to bank financed loans), which may limit accessibility for some borrowers.
Pros and Cons of Bank Loans
Pros of Bank financing
Bank loans can offer higher loan amounts, making them suitable for more expensive properties. They typically have more flexible qualification criteria compared to Pag-IBIG, which can make it easier for some borrowers to obtain financing.
Cons of Bank financing
The downside of bank loans is that they may come with higher interest rates compared to Pag-IBIG loans. Banks also usually offer shorter repayment periods (15-20 years), which can result in higher monthly payments. Although, some banks now such as Maybank offer a higher loan term of 30 years.
BPI also has a Maybahay program with a maximum loanable amount of 3 Million that offer loan term of 30 years.
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How Do You Qualify for a Loan?
Pag-IBIG Loan Qualification
To qualify for a Pag-IBIG loan, you must:
- Be an active Pag-IBIG member with at least 24 consecutive monthly payments.
- Be no more than 65 years old at the date of application and not more than 70 years old at loan maturity.
- Pass a background and income credit investigation.
- Be legally able to acquire property in the Philippines (Filipino citizen).
- Have no foreclosed bank or HDMF loan.
Bank Loan Qualification
Bank loan requirements are similar to Pag-IBIG, with some differences:
- The maximum loan term is typically 20 years for most banks, although some like Maybank offer 30-year terms.
- Must be a Filipino citizen (foreigners can obtain loans but often at higher interest rates).
- Must have a viable income source, whether through employment or business.
Loan Purposes
Pag-IBIG Financing
Pag-IBIG loans can be used for:
- Buying a residential lot
- House construction
- Home Improvement
- Refinancing an existing housing loan
Bank Financing
Bank loans can be used for:
- Buying a residential lot
- House construction
- Home Improvement
- Refinancing an existing housing loan
- Buying a condominium unit
- Buying a townhouse
- Buying a commercial property
Different Types of Home Loans
Both banks and Pag-IBIG offer various types of home loans. For a home purchase, the loanable amount is typically 80% of the appraised value. For lot or condo purchases, the loanable amount is usually 70% of the appraised value. Construction loans typically cover 80% of the bill of materials. Home improvement loans are available for renovating an existing home, and refinance mortgages are available after two years of regular mortgage payments with no history of default.
The appraised value is determined by a bank or Pag-IBIG appraiser and is usually lower than the selling price. Equity is the difference between the selling price and the loanable amount, paid by the buyer to the seller in cash.
Interest Rates
Interest rates vary between banks and Pag-IBIG. Bank interest rates typically range from 6-8% per annum for a five-year fixing period. In contrast, Pag-IBIG’s interest rates are currently at an all-time low due to the pandemic, often lower than bank rates.
Loanable Amount
The minimum loanable amount for banks is ₱500,000. The maximum loanable amount depends on the borrower’s age, gross monthly income, and the appraised value of the property. Co-borrowers can also affect the loanable amount. For banks, the co-borrower must be a first-degree relative (e.g., parents, siblings), while for Pag-IBIG, the co-borrower can be anyone who is also a Pag-IBIG member.
Pag-IBIG members can take up multiple loans, up to a maximum of ₱6 million. Additionally, Pag-IBIG has a higher age of maturity (70 years old) compared to banks.
Conclusion
When deciding between bank vs Pag-IBIG financing in buying a house in the Philippines, it’s essential to consider your financial situation, the property value, and your long-term plans. Pag-IBIG offers lower interest rates and longer repayment terms but has a lower loanable amount and stricter requirements. Banks provide higher loan amounts and more flexible requirements but come with higher interest rates and shorter repayment periods. Evaluate your needs and qualifications to determine the best financing option for your home purchase in the Philippines.
