What to watch for in Bank Financing

The Philippines is experiencing a transformation in real estate financing. In the past decades, banks were highly conservative concerning real estate lending. Today, real estate is one of their favorites.

Two vital factors affect real estate finance;

  1. Interest Rate
  2. Term of the Loans

Interest rates have plunged from highs of 18-24% several decades ago to lows of 5-8% today. Loan periods have also become more lengthy, and some banks today offer up to 20 years.

These low-interest rates are now desirable for consumers the borrowers. Since our economy today is experiencing much money in banks, finance institutions tend to be more relaxed and approve the majority of loans, most especially for real estate loans.

As the consumer, here are things to watch for in Bank Financing;

1. Look for the lowest interest rates available.

Lowest does not just mean nominal rates. Some banks offer a rate that may seem very low but are good for only one year and re-priceable annually. Thus, it is good to inquire about a bank’s re-pricing practice. Are the new rates based on an average or just the bank’s whim?

2. Look for a longer-term

The only purpose of obtaining credit is to make the monthly payment affordable. Otherwise, if you have the cash to spare, something not used for any other more profitable purpose, then no need to borrow on real estate to make the monthly payment affordable; the interest rate should not just be low. However, the loan term should be as long as possible. Nevertheless, the borrower can always accelerate the payment if he becomes more liquid in the future.

3. Understand the loan provisions

It is also essential to read, scrutinize the fine print of the mortgage contract. Find out if there are high closing costs and other hidden charges, such as insurance, appraisal, etc.

Check for the following;

  • Prohibited provisions such as “pactum Commissorium” (auto-sale) or “Practicum de non-alienado” (prohibiting sale)
  • Conditions that will mean as “default.”
  • Foreclosure and redemption provisions and costs
  • Liquidation provisions, pre-termination charges

Please take note of these things, as it will be your guide on handling your payments for the loan in the future. Do not be pressured to sign the contract directly without reading these fine prints. If you have questions about what you read, you can verify it with the loan coordinator or officer, and they will gladly explain the conditions to you.

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