Goodbye easy home loan terms?
By Ma. Salve Duplito
INQUIRER.net
First Posted 00:42:00 08/11/2008
Filed Under: Personal Finance, Housing & Urban Planning
MANILA, Philippines--Up until recently, Filipino home buyers had quite a run.
Competition among developers in recent years hammered down property prices and banks tripped all over themselves to lend to first-time buyers, causing interest rates to slide to as low as 9 percent for one-year fixed-rate loans and to 10 percent for 15-year fixed-rate loans. Payment terms have even extended to as long as 25 years.
What's more, the real estate scare during the 1997 financial crisis weeded out a lot of bad developers who failed to deliver on their promises, leaving behind mostly credible ones that provide home buyers with a wide array of very attractive pieces of property to buy--from cheap but quality condominium units for city living to posh subdivisions.
Unfortunately, there are storm clouds in the horizon.
A little more than two weeks ago, banks have quietly raised mortgage rates by 50 basis points to 1 percentage point in reaction to the Bangko Sentral ng Pilipinas' tightening monetary policy.
Construction companies are facing massive increases in the costs of steel and other raw materials. While developers will not be able to pass on all of their headaches to home buyers, the days of cheap property may be coming to an end.
Also, Filipinos grappling with the skyrocketing prices of rice, gasoline and other basic commodities may also end up postponing big purchases. This early, the property sector is already experiencing some cancellations, especially in high-rise projects.
Is the tide turning? Are Filipinos seeing the end of affordable pieces of property and easy housing loan terms?
Not quite, bankers say.
Philippine Savings Bank president Pascual M. Garcia III says Filipinos are driven by need and are not likely to be affected by a temporary and slight uptick in interest rates--which is what he thinks it will be.
"Mortgage interest rates have crept up by about one percentage point from its lows. This is still not an impediment to borrow because the buying is driven by need. There are still a lot of people who need homes," Garcia says.
There is a backlog of more than two million homes in the country and while developers have been happily trying to fill in that need, they hardly make a dent due to the country's fast population growth. At 2.04 percent, it's one of the highest in the world.
"People are not likely to stop buying. There may be a bit of a slowdown, but for so long as they have good jobs, and they have the income stream to support a home purchase, that's the way they are going to go," Garcia explains.
Even among overseas Filipino workers, where much of the demand for property is coming from, Garcia doesn't see appetites waning much.
"Foreign analysts have never understood the OFW because they don't fit the usual economic models and consumer behavior models. Filipinos are very adaptable persons and he moves along with the times. We have seen that he will do whatever he can to send money home and buy that property he wants," Garcia says.
Banks may even be ready for some handholding to help home buyers squeezed by higher gas prices at the pump and other pressures.
Jocelyn Sta. Ana, vice president for retail mortgage division at the Bank of the Philippine Islands says banks nowadays look for ways to make it easier for their customers to buy that dream home.
These may include negotiated rates especially for clients with good relationship with the bank, restructuring of loan payments when income streams get problematic, faster turnaround time from two months to five to 10 days and even giving financial advice when needed.
"We look at the total portfolio when we do credit evaluation and if clients have a good relationship with the bank or even if it is the first time that they are getting a loan from us, we consider the total relationship," Sta. Ana says.
It's still a good time these days for those who dream of owning their own place under the sun, both bankers say.
And since a home is most likely the most expensive thing anyone will buy in his lifetime, doing it right is a must. Here are some tips for the first-time home buyer:
1. Look around. Love at first sight does not always work when scouting for a house. BPI's Sta. Ana says there are many borrowers who end up liking something else they see in their neighborhood and are stuck with the first one they jumped at. Not a good situation to be in, she says.
2. Do a thorough soul-searching on your needs and what you can afford. They are not always the same, but even a tentative scribbling of preferences on a table napkin can significantly lessen the time needed to find that dream home. This will also help you determine whether you might be better off renting or buying your own home.
3. Double-check the integrity of the developer. If you are trying to take advantage of pre-selling prices, make sure the developer won't run away from its promises.
4. Make sure the property is free of liens. Home buyers who fail to double-check if the titles they are buying are clean and authentic end up with court cases.
5. Make sure your credit history is squeaky clean. Banks investigate character first above all things. Did you bounce a check? Abuse a credit card? All these things will show up in your credit report and can be reason for you to get declined.
6. Look for a bank that is customer-centric. PSBank's Garcia says banks that understand their customers and value the relationship will give payment leeway when needed.
7. Can the bank decide on your application fast enough? Most banks have a five to 10 days processing time, but PSBank promises to knock off one percentage point off the mortgage rate if it does not make a decision on your application within five working days."
This matters to consumers because they already have a pent-up need or they are worried someone else will snap up the property they are eyeing," he says.
8. Beware of steep pre-termination fees. If you decide to pay off your mortgage loan ahead of time, you may get charged anywhere from one percent to 5 percent of the total loan amount.
9. Take the time to understand the terms and requirements. Most borrowers are too focused on interest rates and getting the loan approved that reading the fine print becomes too much of a chore. Big mistake. There are many other costs to taking out a mortgage loan like mortgage redemption insurance, which protects banks when you fail to pay.
10. Don't buy anything you haven't seen. A picture on the Internet may be worth a thousand words, but make sure you still check the property out with your own eyes, or that of someone you trust.
11. Think of your purchase as the stepping-stone for a better home. It takes a lot of guts to take the plunge and borrow a big amount of money. But if you know that this is not your last home, you're more likely to buy a house that you can afford.
(For more articles on personal finance, visit MoneySmarts blog on Inquirer.net with address http://blogs.inquirer.net/moneysmarts)
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