Around this time of year, I get a lot of questions regarding investments. This is not surprising given that employers usually give out bonuses in December.
One of the questions I was asked this year was “Is it a good time to buy a house?”
In my opinion, if you and your spouse have job security, and are still renting a house, then it is a good time to buy a house.
Buying your family home is one of the best investments you can make because it is a tangible investment that will help you save money on rent and bring you and your family happiness and peace of mind.
I know it is scary to buy a house when there is a crisis such as the ongoing COVID-19 pandemic. However, because of the pandemic, there is a greater chance of buying a house at a much lower price or at more affordable payment terms.
Moreover, because interest rates are so low, there is a risk that property prices will go up sharply when the economic recovery picks up steam, making the dream of owning your own house more out of reach.
One of the main obstacles to buying a house is the huge down payment. However, there are many houses in provinces near Manila that can be bought with only a 10-percent down payment. Some developers also have promotional terms on the down payment making buying a house even more affordable.
Another possible source of funds for the down payment is your employer. Some companies allow their employees to borrow a certain amount of money at a very low cost. If your company provides that benefit, then you should avail yourself of it.
Finally, because of the lockdowns brought about by the pandemic, you probably have more savings because you shopped, dined and traveled less. Rather than splurging on a new phone, a designer bag or upgrading your car, seriously consider using your savings to pay for the down payment of your own house.
Admittedly, the 90-percent balance is still a huge amount that you will eventually have to pay. However, if you are still young, you can avail yourself of a long-term housing loan of up to 25 years to make the monthly amortization much more affordable. For example, assuming an interest rate of 5.375 percent a year (which is the interest rate on a Pag-Ibig housing loan under a three-year repricing period), the monthly amortization on a P1-million loan that is payable in 25 years is only P6,296.45. In contrast, the monthly amortization on a one-million-peso loan that is payable in five years is more than three times higher at P19,273.52. Moreover, you only need to have a monthly income of around P17,400 to avail yourself of a 25-year loan of P1 million, while you need to have a monthly income of around P54,400 to avail yourself of a five-year loan of the same amount.
Many banks have loan calculators online that will help you determine the monthly amortization on different amounts of loans with varying maturities. The loan calculator will also tell you how much you can borrow given your family’s monthly income. You can use the information from the loan calculator to determine the price of the house you can afford to buy right now.
In shopping for a bank, do not just go with the first bank that approves your housing loan application. Borrow from a bank that will charge you with the lowest lending rate. Note that a 1-percent differential in interest rates on a P1-million loan is P10,000 a year. A lower interest rate on your housing loan will allow you to save money and help reduce your monthly amortization.
Also, only borrow from a bank that is willing to waive or does not charge prepayment penalties. Although availing yourself of a longer term loan will allow you to reduce your monthly amortization, you want to have the option of paying down your debt when you have excess cash because of a pay increase, a larger than expected bonus or any unexpected windfall. That way, you can be debt free faster.
I hope that the information provided here will help you determine if you can afford to buy a house anytime soon, even if there is a pandemic. If not, I hope that you will at least be inspired to begin your journey of saving up for your dream house because owning a house is not impossible, especially with the low interest rate environment currently. INQ