Buying a home in 2019? High interest rates will bite

Ralf Rivas

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Buying a home in 2019? High interest rates will bite
High inflation in 2018 is the poltergeist of the new year. Check Rappler's list to see which banks offer the lowest interest rates for housing loans.

MANILA, Philippines – Thinking of finally buying your dream home this 2019? Think again, as it might turn out to be a nightmare once you start paying off bank loans.

Consumer loans are ridiculously high this year, and 2018’s high inflation rate can be blamed for the nasty rates.

Should you decide to push through with the purchase despite unfavorable market conditions for consumers, it pays to scout for banks with the best rates, payment schemes, perks, and other services.

Based on data gathered by Rappler, house loans can reach as high as 10%, should a consumer prefer a 10-year fixed interest rate. 

For a 5-year fixed interest rate, the usual option of most consumers, it can reach as high as 9%. 

Meanwhile, those who want to opt for a yearly adjustment can get loans with an interest of 6% to 8%.

The rates are much higher compared to rates during the 1st quarter of 2018. 

For instance, Chinabank offered rates as low as 5.25% for a 1-year fixed rate and up to just 8% for a fixed rate of 6 to 10 years. 

Meanwhile, the United Coconut Planters Bank offered a low interest rate of 6% for a 5-year fixed period last year. 

Below are the interest rates of some banks as of January 2019. Note that rates can change upon approval of the loan.

Should you buy a condominium worth P2 million and intend to pay it in 10 years at a fixed rate of around 9%, you need to pay P20,268 monthly for it.

This computation already subtracted the usual 20% downpayment of the total contract price needed for the bank loan to push through.

If we apply the same payment terms but with the rate in 2018 which is just at around 6%, the monthly amortization would only be at P17,763.

Some banks like BDO, BPI, Unionbank, and Security Bank have their respective home loan calculators to give you estimates for your preferred payment terms. They also take into account your annual income.

Why are interest rates high now?

Consumers can blame high inflation or the movement of prices of goods in 2018 for the high interest rates.

Inflation peaked at 6.7% in September and October, while the overall average was at 5.2%. Such inflation figures were last seen 9 years ago.

To combat stubbornly high inflation, the Bangko Sentral ng Pilipinas (BSP) had to control money flows in the economy by slapping hefty interest rates on banks.

High interest rates would slow down movement of cash in the economy, and in effect cools down inflation.

The BSP hiked interest rates 5 times in 2018 and brought the overnight reverse repurchase rate to 4.75%. The overnight lending and deposit facilities were also adjusted to 5.25% and 4.25%, respectively.

Banks eventually passed on these increases to consumers. 

High interest rates encourage consumers to save up in banks, but discourages getting loans.

Will we see rates dropping this year? Probably not.

Economists project that the BSP will keep the interest rates for now to further bring down the country’s inflation rate to the desirable range of 2% to 4%.  –

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Ralf Rivas

A sociologist by heart, a journalist by profession. Ralf is Rappler's business reporter, covering macroeconomy, government finance, companies, and agriculture.