I am glad that there is a website which helps Filipinos with their financial life. I have questions with regards to bank financing for real estate. I purchased a condo from one developer. My payment terms is 20% DP for 36 months and 80% bank financing.
I would like to ask regarding bank payment terms, on which they have 5 years, 10, years and 15 years. My question is if I choose 15 years loan tenor for bank financing, and then I have money on the 5th year and I want to pay in cash, is this possible, or can I pay in advance without penalty? If yes, do you know which banks offer this?
In in another case, if I have problem with my payment terms can I change the payment terms in the middle of payment period. Meaning do banks offer flexibility in payment?
Please continue your website, this would be a great help not only to me but to everyone.
Thank you for the kind words DM and congratulations on your condo unit. On your 2 questions:
Yes, banks do allow partial prepayments, where you pay in advance an extra amount on top of your monthly amortization. Actually, we advocate this so that you can save on interest expenses and shorten your repayment period. This is like saving interest and buying more time. You may view our previous articles on this for more details on how much we saved.
Banks will have varying policies but generally there are fees involved such as processing fee and break-funding cost etc. But these costs are manageable compared to the bigger interest and time you can save when you prepay (whether partially or in full), hence it’s still a good move. All banks will have this. If you decide to pay extra during your anniversary date, some banks may waive the fees. Or maybe during your repricing date (when the interest rate for your loan is re-calibrated), you can also consider paying extra.
Some banks offer special home loans wherein you can pay an extra amount regularly and they give you “prime rebates” (sorry can’t give you the names but if you Google the words in quotations, you’ll surely find out) while another bank offers “fantastic elastic” terms wherein you can pay more if you have extra, then less if budget is tight. I’m sure other banks also have similar promos or offers so best if you ask these questions when you go shopping for the best bank financing offer.
Restructure / Reschedule
Banks also allow that you change your repayment terms (like longer tenor and lower amortization), but again there are fees involved. Generally, restructuring is done when Juan is already delinquent or past due in his loan because of financial difficulty but not yet too delinquent to merit foreclosure / repossession of property (which is sad). Rescheduling meanwhile are for those that are still current / updated with their loans but wish to have lower amortization. At times, even the interest rate is lowered if client is really in a tight financial situation.
Again, there are fees to be paid here and it depends on the amount you still owe and when you request for it.
Unsolicited advice: Look for the lowest rates and fees, then inquire if you can partially prepay the loan from time to time. When deciding for the loan tenor, choose the one where you can comfortably pay the amortization on a monthly basis. Don’t choose a very short tenor with a high amortization that you end up missing payments and become delinquent. Instead, choose a tenor that’s just right, make your monthly payments on time, then prepay your loan when you have extra. That way you have good credit standing, and finish on your loan much earlier.
Hope this helps!
May you have a richer life.