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Home Loan Calculator
Note when using the Home Loan Calculator:
If you are using a smart phone, lightly touch the yellow box to edit "LOAN AMOUNT" until keyboard appears (about 3 tries). Upon entering the "LOAN AMOUNT", lightly touch on "Monthly Bank Payments" for results to appear. If changing the interest rate, don't forget to add % sign.
INSIGHTS ON BANK LOAN AND PAG-IBIG HOME LOAN
What is the total maximum loanable amount?
The maximum loanable amount would be about 70% - 80% of the total assessed value of the house and lot.
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What is a Fixing Period?
Also known as the repricing period, tenor, cycle, or fixing period, it refers to the time frame during which the fixed interest rate will apply.
What Fixing Period should I choose?
For example, if you choose a 1-year fixing period, this means the interest rate will not change within 1 year. After 1 year, interest rates will be computed again based on Banko Sentral ng Pilipinas. The interest rate mostly depends on the Law of Supply and Demand. Higher demand for loans and lower availability of loans would mean higher interest rates. Choosing the fixing period to apply is a personal choice as it is difficult to predict if interest rates increase or decrease. Below is the 25-year history of the interest rates from Banko Sentral ng Pilipinas for your analysis:
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Our opinion: It is our opinion and observation that in every Presidential election in the years 1998, 2004, 2010, 2016, and 2022, and also during the early months of the Covid Pandemic, interest rates seem to drop. During times of uncertainty, the demand for loans seems to drop since investors adopt a "wait and see" attitude. It is also our observation that interest rates increase when inflation rates increase since the demand for loans also increases due to the increase in the cost of goods and services. Please note that this is only our opinion since it is difficult to predict interest rates as there are too many factors involved. Even international events and natural disasters have an effect on interest rates.
Note when using the Home Loan Calculator:
If you are using a smart phone, lightly touch the yellow box to edit "LOAN AMOUNT" until keyboard appears (about 3 tries). Upon entering the "LOAN AMOUNT", lightly touch on "Monthly Bank Payments" for results to appear. If changing the interest rate, don't forget to add % sign.
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Do I need any Cash or Equity even though I loaned from the bank already?
The following are things the bank won't tell you.
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If your project cost is at 3.5 Million Pesos and the bank approves you the same amount, it does not mean that they will give you the whole amount in an instant. They will give the 3.5 Million Pesos in tranches. What they won't also tell you is that you would still need about 40% extra cash or equity just so you can complete the project. Yes, it does sound confusing. You borrowed money since you need money but now you need money so the bank can release you money. To further illustrate and to make things clear, this is an example of a 3.5 Million Peso loan:
Loan Amount: PhP3,500,000.00
Project Cost: PhP3,500,000.00
Approximate Lot Value: PhP1,000,000.00
The first tranche or release of the bank will largely depend on the value of your lot. This guarantees the bank that even if you do not proceed with the construction, they still have your lot as collateral. The first tranche or release is approximately 60% to 80% of the value of your lot. For illustration purposes, let's say they would first release 70% of the value of your lot.
The 1st tranche or release would be at PhP700,000.00 or this would represent 20% of the Project Cost.
This is where our first problem starts. The next tranche or release of the bank is if we accomplish 30% of the project. Logically, we would need 30% of the funds so we can accomplish 30% of the project. Some of our clients would say, can't we just hasten the project so we can reach the 30% and have the funds released? Even if we hasten the project, the 20% funds we have simply won't buy 30% of the materials needed and pay 30% of the worker's salaries. We need atleast 30% funds to accomplish 30% of the project. With this first problem, we already need 10% cash or equity just so we can get the first tranche or release.
The second problem would be the bank's under assessment of accomplishment. Banks want to make sure that should you stop or abandon the construction of the project, they would still have the upper hand. The illustration below is a sample of the bank's target completion items for them to release funds:
If you may notice at the 90% mark, all major items are at 100% except floor finishes at 80%, painting at 85%, electrical at 85% and plumbing at 85%. Floor finishes, painting, electrical and plumbing constitute less than 25% of the total project cost. With the other works at 100%, that would mean the other works would already be at 75%. If we add this with around 20% of the remaining works done (average of 83% of 25%), that would mean that the 90% mark set by the bank is about 95% in actual accomplishment. This would mean that banks under assess by about 5% just so they are sure that they have a 5% allowance should there be defects in the construction. This would also mean that aside from the 10% cash or equity needed to reach each % milestone accomplishment, 5% cash or equity would still be needed.
The third problem would be the bank's time to release the funds. Upon each application of loan release, banks would need approximately 2 calendar weeks in all for application processing, inspection, assessment, approval, release and check clearing for the cash to be released. In the two weeks that we would be waiting, the construction is going at a rate of approximately 7.5% accomplishment every 2 weeks. If we do not have 7.5% cash or equity at hand, that would mean we would have to stop construction every time we apply for loan release. If we do not wish to stop, we would need about 7.5% cash or equity.
In summary, for the 1st tranche or loan release, we would need 10% because the lot value is not enough to cover the 30% fund required, 5% due to bank's under assessment and 7.5% so we can continue with construction while waiting for the 2 weeks for the banks to release. This would total to about 22.5% cash or equity required for us to get the 1st tranche or loan release. From our PhP3,500,000 project, that would be about PhP787,500 cash or equity needed for us to get the 1st tranche or loan release.
However, the 22.5% is only for the 1st tranche or loan release. Although banks release in tranches for the 30%, 60% and 90% mark, the release for each mark is not equal. The final release or the 90% mark is largest tranche or loan release. With just about 62.5% of total funds released by the bank, the bank will require you to achieve the 90% mark. That would mean you would need atleast 27.5% of cash or equity due to the disparity. This does not include the bank's 5% under assessment and the 7.5% needed so construction could go on while waiting for the bank to release. This means we would need about 40% cash or equity for us to get the final tranche or loan release from the bank. From our PhP3,500,000 project, that would be about PhP1,400,000 cash or equity needed for us to get the final tranche or loan release. The final tranche or loan release is usually almost equal to the cash or equity needed for us to get the final tranche or loan release. This is what we mean when we say you borrowed money since you need money but now you need money so the bank can release you money.
To summarize it all...
If you are constructing using a home loan from the bank, be sure to have atleast 40% cash or equity ready since banks release in tranches, banks under assess and we would need funds while waiting for the bank to release in 2 weeks.