Most Filipino buyers especially yuppies would jump directly into property investment, the same way as jumping into a hot tub. Most of us are easily captured especially if the monthly amortization payment is very affordable; say roughly around PHP 5,000.00 to 9,000.00 monthly. But for those who would able to save cash through down-payment or in full, there are perks that come with it. In this two-part article, we will tackle the advantages and disadvantages of paying the down payment in full or in staggered basis. It is a option between a full cash payment and getting a housing loan mortgage.
Equity or mostly known as down payment in Real Estate is the amount of cash that you pay directly to the seller. In general real estate sales transactions, the buyer is required to pay for the equity. He/she has the option to pay the residual balance in cash or thru mortgage from any financial institution.
In most Western and European property markets, the buyer is always required to pay the equity in full. This is because the property has already been built and awaiting for occupancy. In our local market, developers offer pre-selling properties. This means that the property is not yet built and the land is not even prepped up for construction. As a buyer, don’t expect to see anything in the early stages of the project. As a young broker, I was astonished to see new projects sell like pancakes even though you can only see scrubs, trees and a few birds chirping.
Some pre-selling projects take about 2 to 3 years before the turnover. Hence, the developer offers a longer payment period for the equity/down payment. The payment period corresponds to the number of months until the property is ready for turnover. Once the property is built, most developers would demand full equity, which typically ranges from 15% up to 30% depending on the developer’s initial offer.
If a person does not have the capability to pay the equity in full but has the luxury of waiting, he/she can opt to buy pre-selling properties. Equity payments are mostly interest free. But if you decide to pay the equity in full, most developers offer about 3% to 10% discount on the equity total. After paying the equity, the property is now ready for turnover and then the financial company, either the Home Development Mutual Fund (Pag-ibig), bank or thru in-house financing would take over the remaining balance as housing loan or mortgage and of course, subjected to interest rates depending on prevailing market rates.
Pag-ibig usually offers the longest payment term which is up to 30 years. Banks usually offer up to 20 years depending on the initial agreement with the developer. In-house financing usually offers 3 to 5 years and in rare cases, 10 years.
In some instances, even if you pay the equity in full, the buyer would still have to wait for 2 or 3 years because that is the set timeline for the developer. In this case, a person can opt to fully pay the equity and get a percentage income and continue to pay a certain amount on a monthly basis. In this process, you are generally increasing your equity, which is more than the required amount. However, you also minimise the balance, and in turn lessens the amount to be mortgaged when the property is turned over. Always take note that the remaining balance is taken over by your mortgage loan and subjected to interest.
Should I pay my equity in full?
- If you need to move-in asap, then a big yes! You need to pay the equity in full before you can use the property. This is required by most developers and sellers for properties that are already built or ready for occupancy.
- If you have enough money to cover the whole equity and you want to save by getting the discounted rate then YES.
- If you want to increase your equity and then reduce your remaining balance while you wait for the turnover, which in turn helps you lessen your monthly mortgage, then YES.
Joel Dennis loves to eat Munggo Beans topped with Malunggay Leaves on Fridays. It would be great if there is a fried Bangus or Galunggong on the side.
Email me at: Broker@JoelDennisMuyco.com