We often see advertized rates of properties in flyers, websites, and other marketing materials declaring that payments are, for example, “as low as P5,000/month.” Assuming that outdated tarps or flyers are not used, advertised rates are a good way to gauge the lowest possible monthly pay out you may avail for certain house and lot, and condo projects. But before you fall hook-line-and-sinker to their marketing ploys, here are four things you, as a house and lot or condo buyer, should know:
1. Down payment terms vs. monthly loan amortizations
Remember that when buying a property like a house and lot or a condo on installment, payments are divided into the down payment (sometimes referred to as equity) and the “loanable” amount which you will borrow from a bank, PAGIBIG, in-house financing, or other lending entities. Often, advertised rates of developers refer to monthly payouts for the down payment and do not refer specifically to the monthly loan amortization which you will later be required. Be aware that loan amortizations, in many instances, can be higher than monthly down payments.
2. Lower down payment equals bigger paid interest
Lower monthly equity payouts are offered by developers by lowering the overall down payment portion of the property. For example, some offer 10% down payment instead of the usual 20 or 30%. While this lower the monthly payment, the undesirable implication of this is that the ‘loanable’ amount will be increased, thereby increasing the amount of purchase that will be subject to interest. If you can afford it, it is, best to pay a bigger down payment to save more in the long run.
3. Lower monthly down payment by increasing payment terms
Another way developers lower the monthly down payment is by offering longer terms. This is often the practice if the project completion is still a long time away but may sometimes be used even for ready for occupancy (RFO) units. This is not necessarily bad, though, if you are not in a hurry to use your property. If you do have the capacity, you can opt for a shorter payment term. However, since down payments are interest free, it does make sense in most cases to spread the payment over the maximum period allowed by the developer, timing its completion upon the delivery of your house and lot or condo.
4. Most real estate agents focus on down payment options only
The quickest way for real estate agents to qualify a buyer and close the sale is simply to discuss with them the monthly payout for the down payment. They almost never talk about your capacity to pay loan amortizations, which as pointed out earlier, could potentially be significantly higher than the monthly down payment. Make sure, to ask your agent for the estimated monthly amortization for the loan portion of the payment. An experienced and informed agent should be able to give you a reasonable answer or refer you to resources, such as, websites, banks, or online loan amortization calculators that can give you a good idea of eventual monthly loan payables. As a general rule, your gross income should be more than 3 to 3.5 times higher than your monthly loan amortization.
In the end, purchasing a property whether a house and lot or a condo requires some balancing act with your capacity to pay. Whatever you decide, just make sure you are making an informed and intelligent investment decision.
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