How To Decide Between A Fixed Or Re-pricing Home Loan

Home shopping to find a house within your tastes and budget is a huge drain on your time, but wait till you then get to the all the loan terms, bank options, rates, docs, and requirements! It’s enough to make your eyes cross. We’ve dug in deep to provide you with some of the answers in this quest. Each family’s situation is unique, so you take the advice here, and think about how it applies to your family and overall success.

For starters, we will help you understand the difference between both options. A “fixed” rate home loan in the Philippines is easier to understand. For the length of the loan, you will be paying the same monthly home loan payment. For example, if you buy a house for P2,000,000, you will pay P600,000 for the down payment (30%), and the resulting loan of 1.4M will have monthly payments of P14,930 over 20 years. Your monthly payment stays constant because the interest rate will remain unchanged for the entire length of the loan.

In the “re-pricing” choice, you can set the interest rate for up to 5 years. After the fixed period ends, the bank adjusts the rate to “market rates” every year. If the market rate increases, your home loan’s rate and monthly payment will also go up. Banks implement this low rate as a marketing tool to grab your attention. The low 5.88% rates will only be available for 1 year, and there’s a good chance the rate will increase corresponding to the “prevailing market rates”. Locking in a loan like this might free up some extra cash to buy some fun household items or games such as a playstation, psp, xbox, or Nintendo on installment, or even that iPad on installment you’ve been wanting for so long.

How to choose? If you are more conservative, and like knowing that your payment will fixed and you don’t have to worry about increasing your income or cash flow in the future, choose the fixed rate home loan. If you want to avail of the low rate, and know that you can make the higher payments in the future, this is the right choice for you. Most probably the interest rate on the repricing loan won’t jump up immediately, and if it does, you can refinance your home loan into another low rate fixed loan!