8 Things We Hope To See In the Philippine Bank Home Loan System

Home loan financing is perhaps the most accessible way for most Filipinos to get their dream homes. Government agencies like the Pag-IBIG Fund and SSS also have national programs suited to help Filipinos achieve this dream. Banks are the other, more popular option to get financing for your new home.

Here are the eight things that we would like to see in the country’s existing bank home loan system:

1. Pre-qualification should be a standard in the Philippines.

Pre-qualification is a quick process for banks to determine whether the borrower has the capacity to pay for his loan. This procedure is normally not part of the home loan process in some banks, but would be beneficial for first-time homebuyers who need to determine whether they can afford to pay amortizations on their dream homes.

2. Bank rates for home loans should be transparent and fixed.

Because of the number of banks offering home loans, determining which bank offers the best rate can be a time-consuming affair.

Most banks in the country do not publish or put a disclaimer on their loan interest rates. This is because banks update their rates according to market fluctuations, like a financial crisis for example. First-time borrowers then get frustrated during the home loan process when they are unable to secure the interest rate that they initially sought during the application period.

A slight change in interest could drastically affect a borrower’s amortization. In this interesting infographic about home buying fees and charges, it demonstrated how a 0.2% increase in home loan interest rates could easily make a dent on a borrower’s budget.

On the other hand, some banks offer rate protection during the first few years, which would come in handy for newly-married couples who need to curb their finances or families who have children to send to college.

3. Interest rates should be affordable.

In a survey on mortgage conducted through he concierge department of ZipMatch, 8 out of 10 customers revert to bank loans instead of the Pag-IBIG Fund when it comes to financing homes. According to survey data, the bank interest rates are significantly lower than Pag-IBIG and offers rate protection up to a certain period.

But banks might get more competitive with their interest rates sooner rather than later, thanks to foreign banks who are eyeing to enter the industry this year. Bangko Sentral ng Pilipinas, along with other industry regulators, reportedly have been processing an application by a foreign bank, and are expecting two others to submit their papers soon.

4. The bank loan application process should be quicker and all be made online.

The estimated time in processing a bank home loan is around one to two months, not discounting the many holidays in the Philippines that would shut down working days. On the other hand, borrowers who already have a home in mind to buy would consider the time spent to get bank financing a very big problem. More so when the said property is attracting other, wealthier buyers.

Although some banks have made strides in speeding up the home loan process by adopting an online application process, time will tell whether we see a future where a bank home loan could be processed within a few days.

5. The Philippines should have a centralized credit bureau.

A credit score reflects a borrower’s financial health and his capacity to pay off debts. Although there is no centralized credit bureau yet, interested borrowers could request from the bank to run a report on your finances.

However, FICO country director for the Philippines Burton Crapps said that it is high time that every Filipino is given the equal chance at being measured by lenders, and that a centralized credit bureau should be expected in the next few years. FICO, or the Fair Isaac Corporation, is the very company that provided the very central credit score model used by the US.

6. Application approval for self-employed individuals should be easier.

Traditionally, self-employed individuals, especially those who earn their income online through services or goods, have a hard time getting approval for a loan. This is because self-employed individuals, like work-at-home professionals or freelancers, do not have government proof to assure banks that they have the capacity to pay the amortizations.

Self-employed earners in the Philippines, however, are not compelled to file their taxes regardless of whether their income came from, unlike in the US. The only group of self-employed individuals who can produce income tax returns are usually those involved in small to medium-sized, brick and mortar businesses and licensed professionals like doctors, nurses, and engineers.

7. There is a way for former “bad creditors” to regain the trust of a bank again.

Typically, banks would rarely re-establish a relationship with borrowers who have a bad credit history. Contrary to public belief, banks would welcome borrowers who have previously defaulted on their payments if per due diligence, the latter is found to have the capacity to pay.

On the other hand, borrowers need to be more proactive with their communication with their bank and with ensuring that you are not violating additional stipulations that would hurt your credit line.

If borrowers do have the intent to renew their payments on their defaulted debts, banks normally will have them go through the same checks as they normally do during the loan application process.

8. Borrowers, and even some developers, will be smarter and confident about the mortgage system.

A recent study of lifestyles, attitudes and relationships revealed that only 144 out of 1,100 respondents scored over 80% in financial literacy, despite the fact that 220 claimed to be financial experts. 30% of the respondents said that a house or a condominium is a top priority, and that most of them scored poorly on pre-need plans, stocks, loans, mutual funds, inflation, a healthy budget, and bonds.

Although there are free financial literacy seminars that borrowers can take advantage of, some groups use these seminars as a marketing scheme to “force” borrowers on buying homes without considering the latter’s capacity to pay.

Are there any other improvements in bank loan processing would you like to see in the near future? We’d love to know what you think! Leave your answer as a comment.