What Is a Pag IBIG Housing Loan?

 

What Is a Pag IBIG Housing Loan?

The Pag IBIG Fund, also known as the Home Development Mutual Fund (HDMF), was established on June 11, 1978, by virtue of Presidential Decree No. 15304 to serve the two basic needs of Filipino workers:

• a national/government savings program; and
• affordable housing/shelter financing.

In other words, Pag IBIG isn’t just a government agency you go to if you want to secure a housing loan; it’s also a good alternative to a bank because the money you put in your Pag IBIG savings earns higher interest (4-5% versus 1% per annum offered by most banks) over time.

Your Pag IBIG savings also serve as collateral that will qualify you not just for housing loans but also for other Pag IBIG products like calamity loans and multi-purpose loans.

Pag IBIG actually stands for “Pagtutulungan sa Kinabukasan: Ikaw, Bangko, Industriya at Gobyerno.”

In a nutshell, the Pag IBIG Fund enables the four sectors of society (i.e., the borrower/member, the bank, the industry, and the government) to collaborate in developing a savings scheme that ultimately provides Filipinos with an affordable way to own a house.

Such is the effectiveness of the Pag IBIG Fund in providing ordinary Filipinos with the means to build or own their own houses that then-President Gloria Macapagal-Arroyo signed into law the Home Development Mutual Fund Law of 20095.

Through the said law, Pag IBIG membership has become mandatory for all Filipino workers whether hired by a local or foreign employer.

Pag IBIG Housing Loan vs. Bank Housing Loan: What’s the Difference?

In building their dream house or buying a property, Filipinos usually count on two housing loan providers: Pag-IBIG Fund and banks.

Each provider has its pros and cons. Your final decision should be based on your own criteria.

However, priority should be given to factors that matter more like qualifications, loanable amount, interest rate, loan term, and miscellaneous fees.

1. Qualifications

Pag IBIG only offers housing loans to its members. Most banks, on the other hand, don’t require borrowers to be a member or savings account holders in order to qualify for their housing loans, provided that the applicant can present proof of income and/or employment.

Minimum wage earners are more likely to get rejected when applying for bank housing loans. After all, banks are still businesses and they have the prerogative to reject your application if you can’t prove you’re capable of paying off your loans.

Pag-IBIG, by contrast, has an Affordable Housing Loan Program specifically designed to give low-income earners the chance to have their own house.

2. Loanable Amount

Borrowers under the Affordable Housing Loan Program can avail of housing loans up to ₱580,000 for socialized housing or up to ₱750,000 for socialized condominium units6. Meanwhile, regular applicants with above-average income can borrow up to ₱6 million.

Banks, meanwhile, have an average minimum loanable amount of ₱300,000. For both housing loan providers, the final loanable amount depends on several factors or criteria set by the provider itself.

3. Interest Rate

Those who are availing of Pag IBIG housing loans enjoy lower interest rates: as low as 3% for low-income earners and 5.75% for regular housing loan borrowers in a 1-year fixed pricing period. You can check the complete list of rates on PAG-IBIG’s FAQ page.

For this reason, Pag IBIG housing loan can now compete with banks that offer housing loans with a similar interest rate of 5.25 to 6.25% for the first year (e.g., Metrobank and BDO) and up to 6.75% for a 3-year fixed pricing period.

Moreover, Pag IBIG isn’t allowed by law to increase its interest rate beyond 2% per annum. By contrast, banks don’t have a ceiling on the interest rate.

Loan term: In Pag IBIG, borrowers can choose how long they’ll pay off their housing loan, with 30 years as the maximum loan period. Banks offer loans with a repayment period ranging from 20 to 25 years, depending on the purpose of the loan.

4. Miscellaneous Fees

Pag IBIG guarantees applicants they will not be charged with fees other than the ₱1,000 to be paid during application and another ₱2,000 before loan release.

Depending on your bank, fees may include an appraisal fee of ₱4,000, a handling fee of ₱3,000, a notarial fee of ₱200 as well as doc stamps tax and registration fee.

Since you’re reading this article, it’s safe to assume that you’re leaning more toward the Pag IBIG housing loan.

The best part of being a Pag IBIG member is you get to keep all your contributions in your own savings account.

Even if you don’t avail of the housing loan, your money can potentially earn a lot of dividends over the years. The money will stay in your account until you decide to withdraw your savings at the end of the membership period which is 20 years.