The sad truths are:
1) The advertised amount is only the monthly down payment.
If you are going to buy a condo unit, you need to pay the reservation fee (if applicable) and down payment before proceeding to pay the loanable amount. For example, if a condo unit costs Php1 million with a reservation fee of Php15,000, the down payment will be Php100,000 (10% of the total price). Usually, down payments are payable within a pre-determined number of months. For instance, the down payment is payable within 24 months. The monthly down payment will only be Php4,166. This is the advertised amount.
Further, the actual monthly amortization will depend on other factors such as the mortgage term. The remaining Php885,000 (Php1,000,000 – Php100,000 – Php15,000) may be payable between 5 to 20 years; it depends on the developer. The simplest calculation is if you choose a mortgage term of 5 years, you need to pay Php14,750 for the monthly amortization of the unit (Php885,000 / (5 x 12). Of course, you can always spread the payment by choosing a longer mortgage term, say 15 or 20 years. Evidently, monthly amortizations are typically higher than the monthly down payments.
2) Lower monthly down payments are not financially sound in the long run.
Developers require at least 10% down payment, but it could be between 20 to 30%. If you think you are saving because of the lower down payment, think again. The lower the down payment, the higher the loanable amount (which will be divided into monthly amortizations). The loanable amount tends to become higher because the interest rate will be computed against it. As such, it is best to pay the highest down payment that you can afford.
3) Longer down payment terms do not necessarily mean bigger savings.
Developers also offer longer terms for down payment rather than just 6 months. This holds true for both pre-selling and ready for occupancy (RFO) development projects. There is nothing completely wrong if you want to exhaust the 24 months or the maximum period for completing the down payment more so if you don’t have an immediate need to use the condo. Not to mention, down payments are typically offered at 0% interest rate.
However, the more you delay paying for monthly amortization, the higher the interest that you have to pay in the long run. Again, if you can pay higher for the monthly down payment, then do so. If also possible, time the completion upon the delivery of the condo unit. This way, you can already start paying for the monthly amortization.
What should you do?
Agents will qualify a buyer like you by your capacity to pay the down payment. This will not give you a complete view of the picture. The discussion of your capacity to pay must be holistic and should include the down payment and the loanable amount as well as other costs and fees condo unit acquisition involves. In general, the monthly amortization payment must not exceed the 30% of your gross monthly income. Based on the example above, your gross earning at least Php50,000 per month.
In sum, purchasing a condo unit in BGC or anywhere in the Philippines requires a careful assessment of your capacity to pay. And please, don’t be lured by misleading advertisements. Aim at making an informed and smart decision.
Image credit: AyalaLandBroker.com