How to Refinance a Housing Loan in the Philippines
Homeownership is a dream for many Filipinos, and in most cases, this dream can be achieved by the average person through a housing loan. However, some homeowners may experience life changes that can affect their ability to pay off their debt. Perhaps they found another loan with lower interest rates, or maybe their financial situation has improved enough that they can opt for a shorter mortgage term. They may also experience financial setbacks that make it more difficult for them to pay the monthly amortization. Whatever the case may be, homeowners may consider refinancing their loans so they can pay them off in a way that suits their current needs.
Loan refinancing is a process in which individuals take out a new loan to pay off an existing one. It’s possible that the new loan has better terms, or maybe they need the proceeds from the refinanced mortgage for debt consolidation, renovations, or other financial obligations.
Overall, refinancing is a smart choice for those looking to save money as they work to repay their debt. However, it also has its advantages and disadvantages and may not be necessarily beneficial for everyone with a home loan. If you took out a loan for your home and are thinking about refinancing, here are a few tips to get you started.
Review Your Original Loan’s Terms and Conditions
Before replacing your existing loan, you first need to check the terms with your original lender. For instance, your existing home loan could have a lock-in period that could result in penalties when breached. In the Philippines, lock-in periods can range anywhere from two years to 20 years.
You also need to consider the fees associated with refinancing, including property appraisal fees, administration and processing fees, pre-termination charges, and insurance premiums, to name a few. Though refinancing involves going through the process of applying for a new loan, it also requires you to shoulder fees and follow procedures associated with closing the previous loan. Make sure to take these into consideration when deciding whether to push forward with refinancing.
Determine Your Favorable Terms
When assessing the terms of your previous loan, you need to identify the rules that work for you and which ones don’t. This could mean determining interest rates that are favorable to your financial status and whether you would benefit from longer or shorter payouts.
In addition, you need to determine if you would rather opt for fixed or variable interest rates. Fixed rates allow you to pay the same monthly amount regardless of market changes, which can be beneficial for homeowners who don’t plan to move anytime soon. However, such rates are also not adjusted despite a general decline in interest rates, so this might not be cost-effective for you.
On the other hand, variable-rate loans allow more flexibility in payments. Loan repayments may decline along with low-interest rates, and initial loan periods might be subjected to lower introductory rates. However, market changes could also lead to higher interest rates, which means payment increases for your loan. With variable terms, borrowers are also largely unable to predict cash flow because of fluctuating rates, so it may become challenging to keep up with your payments if you have a limited budget.
Ultimately, the best loan terms depend on how you’re navigating your current financial situation. This is why it’s important to do your research, which will be discussed next.
Shop Around and Make Comparisons
Refinancing a loan is a big commitment to make, so it’s important to survey the lending market for all your viable options. Make sure to reach out to several banks or lenders and compare their prices, terms, and repayment periods. Interest rates may vary depending on the bank, and you also need to consider other costs and fees as well. It’s extremely important to transact with trusted banks and lenders in the Philippines, so make sure to get multiple opinions before refinancing a loan. Lastly, make sure to read the fine print so you don’t get surprised by the financial obligations that come with refinancing your home loan.
Get the Documents in Order
Once you’ve found a lender with agreeable terms, review your application carefully. Make sure that all the fees are included and accounted for in your budget and that you fully understand the terms and conditions. You also need to get all the necessary documents in order, including your proof of income, financial statements, tax returns, insurance policy, property title, and other requirements the lender might request. Preparing these requirements ahead of time will make processing more streamlined, plus you will have more peace of mind knowing that all you need to do next is pay off your debt.
Ask If Anything’s Unclear
As with most situations in life, it’s always a good idea to ask if anything is unclear. Again, refinancing is a big commitment. You need to have a good grasp of what you’re in for, so make sure to ask questions if there are contract terms that confuse you.
All in all, it’s best to raise your questions while still vetting your options so you can better determine the best package for you. It would also be wise to opt for banks and lenders with accessible and responsive customer service, so you can promptly get any queries and concerns out of the way.
Final Word: Pay Responsibly!
Last but not least, you must maintain a good reputation with your lender and abide by the agreed-upon payment terms. As such, you need to have a good credit profile and avoid penalties that could keep you from benefiting from extra financial assistance.
Refinancing offers plenty of benefits to Filipinos who dream of owning a home, but it’s also important to be responsible and follow the processes needed to achieve that dream. Be sure to follow the tips above to make refinancing as smooth as possible and make your vision of homeownership a reality.
