Mortgages are used by individuals and companies to create large real estate purchases without paying the entire price. SecurityBank’s Junior Assistant Manager and Sales Officer, Carl Chung, explains the process, rules, and regulations of a mortgage.
Kinds of Mortgages
According to Carl Chung, there are different kinds of mortgages:
- Real Estate
- Car Mortgage
- Equipment or Asset Mortgage
Business Mortgage (not yet available in the Philippines)
First Steps in Applying For a Mortgage
- Pass Your Personal Documents Required by the Bank
“Each bank has its own requirements before applying for a mortgage”, Carl shares. Generally, it all comes down first in passing the documents before you apply for a mortgage.
- Bank Reviews Your Documents Based On Credit Parameters
“Secondly, the bank will thoroughly review your documents under MRAC or the Minimum Risk Acceptance Criteria”, he stated. To be honest, even if you’re liquid enough to purchase real estate or a car, you still need to consider the risk factors that you’ll face throughout the loan term.
“The people who are eligible to apply for a mortgage are residents in the Philippines. But for foreigners, they can only apply for a mortgage for condominiums, unless they are married to a Filipino.”, Chung says.
He also adds that one of the common reasons why bankers reject applicants is because of a poor credit score. A credit score is measured on how you pay your debts on time.
“We base our credit acceptance on the 4 C’s of Credit: Character, Capacity to Pay, Collateral, and Capital.”, he added.
Talking about expatriates, a Filipino expatriate can apply for a mortgage as long as they have a relative who is a resident of the Philippines that will act as a co-borrower of the loan.
Required Documents For Mortgage
Every bank has its own required documents for a mortgage. But for Security Bank, according to Carl Chung, these are the following requirements BEFORE the mortgage approval:
- Income documents
- Credentials (government-issued IDs, etc.)
- Income Tax Return
- Details of the Property
Now for the requirements AFTER the mortgage approval, here are the following:
- Promissory Note signed by the client as a promise that they will pay the loan on time.
- Fill the bank’s UnLaMA (Unified Liability and Mortgage Assessment)
This unique document of Security Bank, according to Chung, allows the bank to apply the mortgage to the property of their client after they approve the request.
Downpayment for a Mortgage
“Generally, you have to down-pay at least 20% of the purchase when it comes to Personal Loans such as Home and Car loans. But for Business Loans, it should be 40%. This only applies to Commercial Banks, not Rural banks.”, according to Chung.
One of the reasons why business loans have a greater downpayment than personal loans is because of the risk factor of a business. Neither the bank or the client know if the business will succeed or not.
Furthermore, only Commercial Banks are authorized to release business loans. Commercial Banks have more capital than Rural Banks, and are therefore better equipped to absorb the risk of a business loan.
Processing the Mortgage
“Generally, after the credit process is done by the bank, the client must site the documents. A member of the bank must be there to ensure that all documents are verified. There will be a third-party that will pass the documents to the Registry of Deeds and the bank will have to wait for the annotation. It usually takes a month” he said.
Mortgage Term Length
Mortgage terms can be as short as 2 weeks for informal lending, to 25 years, depending on negotiations with the bank. Banks accept short-term leases no shorter than 3 months.
Mortgage Interest Rate
The Loan Term is how long the loan will run for. So if your loan term is 10 years, then you have to pay the bank for around 10 years.
The Fixing Term is about how long does the interest stay. Let’s say the interest is around 8%, but that is only fixed for 1 year. Next year, the rate will reprise. It keeps changing.
Calculating the Payments
The payment was calculated based on the principal and interest value. Usually, when the clients pay for a loan, the interest value will be paid first and the principal value will be paid last.
How Quick Can One Apply for a Mortgage?
“Depending on the size of the loan, it usually takes roughly around 1-5 months”, claims Chung.
Mortgage Default and Transfer
What about cases where the client is unable to pay off the loan?
Chung shares, “We give the client at least 90 days to pay back the loan. If the client fails to pay for it, we will proceed to the closure process. The bank will take possession of the property and it will try to sell it as quick as possible.”
However, transferring the loan IS possible, the client will ask the other bank to take out that loan hopefully at a lower rate so that they may be able to pay it back.
Repercussions of Failed Mortgage Pay
“The client will have a record in the court and the bank will inform other banks IF those banks ask if the client is responsible or not,” Chung says.
Philippine banks are obliged to reveal if a client is a responsible payer or not. A negative credit score due to failed mortgage payments can be amended by settling the failed loan.
If you want to apply for a mortgage through Security Bank, visit them at https://www.securitybank.com/ for more information.