Did you know that with a Pag-Ibig Housing Loan, you could end up paying more in interest than the amount you borrowed over a 30-year term?
Loan Amount: ₱1,000,000
Total Interest: ₱1,100,862.28
While this might seem daunting, there are strategies you can use to significantly reduce the interest you pay and save more money. In this blog, we’ll explore these strategies and show you how to make the most of your Pag-Ibig Housing Loan.
If you’re considering buying a house or condo through Pag-Ibig, it’s crucial to read this first. It could save you a substantial amount of money.
Already have a Pag-Ibig Housing Loan? Don’t worry. We’ll discuss ways to adjust your current loan to help you save money as well.
Tip 1: Choose a Shorter Loan Term if Possible
Why consider a shorter loan term?
Photo 1: 30 Years Term Loan
Loan: P1,000,000.00
Term: 30 years
Fixed Pricing Period: 1 year; 5.750% interest
Monthly payment: P5,835.73
Interest: P1,100,862.28 <-- check here
Photo 2: 10 Years Term Loan
Loan: P1,000,000.00
Term: 10 years
Fixed Pricing Period: 1 year; 5.750% interest
Monthly payment: P10,976.92
Interest: P317,230.64 <-- check here
Potential Savings
If you select the 10-year term, you can save P783,631.64. That's a lot of savings!
However, your monthly amortization for the 10-year term is P10,976.92 while in the 30-year term, you only pay P5,835.73. If you can afford the 10-year (or lower than 30 years) loan term, avail of it. Be a wise home buyer.
Tip 2: Apply Advance Payments to Your Principal
Wondering how advance payments can help?
When discussing this with a friend who had a Pag-Ibig Housing Loan, he wished he had consulted earlier. Even though he was in his 5th year of the loan, there was still a chance to save. Here’s how:
Steps to Apply Advance Payments to Your Principal:
Visit Your Pag-Ibig Fund Office or Online Portal: Request that any extra payments you make be applied directly to your principal balance.
Clarify Your Request: Ensure that these payments are specifically applied to reduce the principal, not just as early payments for future installments.
Benefits of Applying for Advance Payments:
Lower Total Interest: With advance payments applied to the principal, your total interest decreases. For example, your total interest could drop to ₱294,678.88, compared to ₱317,230.64 for a 10-year term.
Shorter Loan Term: You might pay off your loan in a shorter period. Instead of 30 years, you could repay it in approximately 9 years (113 months).
Flexibility: Applying advance payments gives you flexibility. You can adjust the amount based on your financial situation, making it easier to manage your budget without feeling overwhelmed.
Let us illustrate in more detail:
Photo 3: Notice that the bulk of your Monthly Payment goes to the INTEREST
In Photo 3, what do you observe in the distribution of your monthly payment?
In the early years of your monthly payment of P5,835.73, only P1,044.06 goes to the principal and P4,791.67 goes to the interest.
To remedy this, you can advance payment applied to the principal. Make sure that your advance payment is applied to the principal. Otherwise, the Pag-Ibig Fund simply treats your payments as an advance for the next month.
Photo 4: Advance payment is added to the principal.
Compare Photo 3 and Photo 4:
The Pag-Ibig Fund allows you to advance payment applied to the principal if you pay equal to or more than your monthly payment.
Once you make advance payment applied to the principal, the bulk of the payment goes to the principal and therefore, your account balance gets lower each month.
In our case, if your advance payment of P5,835.73 (the same amount as your monthly amortization) is added to your principal or P6,879.79, this lowers your balance per month.
Effects of Advance Payment Applied to Principal
Two remarkable effects when you start advance payment applied to principal:
The Total Interest on your loan is lower. Thus, more savings! Once you make Advance Payment Applied to Principal, your Total Interest is P294,678.88 which is much lower than the 10-year term of P317,230.64. Therefore, you save more!
The Term of Repayment is shorter. Once you make an Advance Payment Applied to the Principal, you can fully pay your loan in a shorter period. For example, instead of repaying the loan for 30 years (360 months), you can fully pay it for 9 years (113 months).
Photo 5: In a regular 30-year term, you can fully pay the housing loan in 360 months or 30 years.
Photo 6: In a 30-year term with advance payment applied to principal, you can fully pay your home loan in 113 months or 9 years.
Advantage of 30-Year Term with Advance Payment Appied to Principal over 10-Year Term Loan
Compare:
10-Year Term: P10,976.92 per month
30-Year Term: P5,835.73 per month + P5,835.73 (Advance to Principal)
The Advance Payment Applied to the Principal is flexible. You can advance more or you can temporarily stop when you cannot pay for it in cases of emergency, like the Covid-19 pandemic. You can resume paying it when you are financially able.
It means that you can enjoy the low monthly amortization of P5,835.73 instead of P10,976.92 per month. Therefore, you are not so much burdened by the monthly amortization and avoid foreclosing your property for non-payments.
Final Thoughts
By choosing a shorter loan term or applying advance payments to your principal, you can save a significant amount on your Pag-Ibig Housing Loan. These strategies help reduce your total interest paid and shorten your repayment period, bringing you closer to financial freedom.
Ready to explore your options or need assistance with your Pag-Ibig Housing Loan? Contact us today for free assistance. This blog is for educational purposes only. Always consult a lawyer to understand your specific situation and choose the best legal course of action. If you're looking for a residential lot, house and lot, or condo unit in Cebu, contact us at 0920-207-6284 or email cebuhousefinder@yahoo.com for free assistance.
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