See all Tips

Home Purchasing Advices

Pag-ibig Financing vs Bank Financing: Which One Best Suits You?

By Mario CariƱo

Oct 13, 2017

linked-in-light.png facebook-light.png twitter-light.png


Not many Filipinos can purchase their dream house in an instant. But thanks to different housing loan options (namely Pag-IBIG and bank financing), Filipino’s dream of being a homeowner is now possible. The question now though is: which of the 2 housing loan options is better?
 
De facto, none is better than another. Why? It’s because each have their own advantage and disadvantage and it’s a matter of which one you are qualified to and best fit your capacity to pay.

To guide you make a better decision, let’s look at its pros and cons.
 
But before we get into that, let’s look at their similarities, too. Both have the same purpose: to help borrowers purchase their dream home through financing.

Both are long-term—ranging between 15-25 years—and require down payment. These 3 features are where their parallels end. Now, let’s look at their differences. 
 
Membership
 
Obviously, Pag-IBIG is exclusive to its members while anyone can avail of bank financing. However, it doesn’t mean that if you’re a Pag-IBIG member, you will automatically be granted a loan.

Read: Step by Step Guide on how to Avail Pag-ibig Home Loan

They have a list of qualifications and if your record is not impressive, your loan application might be affected.
 
As for banks, they do not have exclusivity. This means that a borrower can apply for a loan from any bank. A borrower is free to select which bank he thinks offer the best loan.  
 
Income Requirements
 
For each one, the loan amount entitlement is relative to the borrower’s income. For Pag-IBIG, two important factors affect loan entitlement and these are the amount of your contribution and the Net Disposable Income.

If you want a bigger loan amount, you need to increase contribution and show that your Net Income can at least cover your preferred monthly amortization amount.
 
As for banks, they more strict with your credit standing and income stability before they grant you a loan. 
 
Loan Amount
 
The minimum amount that Pag-IBIG grants is Php 100K while the maximum is P 3M. Moreover, members are now allowed to take out multiple loans up to P 6M depending on the following conditions: actual need for the funds, capacity to pay, and loan-to-appraisal value ratio.
 
The average minimum loan that banks grant is Php 800K, but sometimes, it also depends on the location. If the housing project is outside Metro Manila, the amount is lesser.

Unlike Pag-IBIG, the maximum loanable amount depends on numerous factors including: capacity to pay, appraised value of the property, proposed collateral, etc.

Additionally, banks don’t give an amount ceiling as long you’re not really a risky borrower based on their assessment of your financial documents. You have to fill out a detailed Financial Information Sheet and they always verify this.
 
Moreover, as an overall rule, your gross income should be at least 3x more than your monthly mortgage fee to have a better chance of loan approval.
 
Loan Term
 
One of the reasons why Pag-IBIG is a popular choice among Filipinos is its longer loan term at 20-30 years. Banks, on the other side, have shorter loan terms. Average period is 5-10 years, a 20 year term is very rare. 
 
Interest Rates
 
To encourage more members to avail of the housing loans, the Pag-IBIG Fund have decreased their interest rates. Their new rates are as follows:



Meanwhile, the interest rates of banks differ and is actually lower than Pag-IBIG Fund. For example, BDO and Metrobank offer 5.5% for the first year.

Subsequently, their rates increase between 6.25-6.50% for a fixing period of 3 years. Yearly repricing rate for existing borrowers start at 7% per annum.

Read: Comprehensive Guide to Bank Housing Loan in the Philippines
 
Have you figured out what’s best for you?
 
Now that we’ve compared the two, it is evident that it highly depends on your current financial situation and timeline. We advise that as early as you’ve reached second year of working, you must start researching about home financing. 
 
Being a homeowner takes a lot of guts and is a major financial decision. It entails a lot of considerations, but once you weigh the pros and cons of Pag-IBIG and bank financing, it’s only a matter of time before you pinpoint the ideal set-up fit for you.