Part 4:Optimal Payment Terms

Buying Your First Condo Unit

(Part 4 – Optimal Payment Terms)

By now, you should be studying the payment schemes of various condominium projects that are of your interest. I am very aware of the difficulty this might bring to you especially since there are a lot of terms that will be discussed; however do not worry about this. As I have laid out the basic terms in “Part 1: Can you afford it?” you should be able to understand the payment schemes better.

Total contract price

The total contract price or TCP will determine the full amount which you will be paying, including all the fees and charges (like taxes, document stamps, and what not) that comes with the purchase of the condo for sale—if you decide to pay it spot on cash. However, to make it clear for you this is not necessarily your entire cash out, particularly in cases when you will be taking advantage of stretched payment terms.

Payment terms

Normally, the longer your payment term the higher the amount you will be paying on top of the total contract price. The first payment term is usually the spot cash or 100% cash scheme which usually has a very significant discount for Philippine condominiums.

More common payment terms usually involve you paying the downpayment first, them paying the balance through in-house or bank financing. These terms are signified by the 20-80, 10-90 proportions in the payment schemes. The first number (20, 10) is the total proportion of the downpayment, while the other, bigger amount is the balance. Most developers offer different terms to pay for the downpayment—typically either a lump sum amount or spread throughout the period before actual turnover of your unit.

For the balance you have two options, it’s either you get in-house financing, which means that you will pay your developer directly for the balance, in monthly amortized payments or you let your bank pay the lump-sum of the balance while you pay your bank the monthly payments for the loan you took from the bank for the purchase of your unit. As I said in part 1, bank financing will give you the lower interest rates for a loan, but they are typically stricter, but in most cases, if you are a stable earner or have a good credit standing you should not have a problem if you are interested in purchasing Philippine real estate. In some cases though, in-house financing is just more convenient for some clients, who can afford the extra monthly rates, for simpler requirements.

So what is the best payment term?

Again, do your homework and ask questions to your broker or developer for all the payment terms you can avail. The first thing you should consider would be to make sure that you can afford the payment term you will be choosing. Often in my personal experience, I usually pick the longer payment terms so that I incur less cash outlays for my investment. However, after 4-5 years I end pre-terminating my bank loan and pay for the balance in full, if for instance I decide to keep and not resell my unit.

Some first time buyers and starting investors are wary of the high interest rates of longer bank financing schemes, but in reality the more important factor to consider is that you should be able to pay for these schemes, instead of thinking of the costs of higher interest. In later articles I will talk more about this, but for now my advice is that you should be financially sound and responsible, pick the easiest scheme for you, regardless of the interest. Check for the best bank rates you can find as they change from month to month sometimes. Also, make sure you finance your checks to avoid termination of your contract and the forfeiture of your payments. As a safety precaution, I always put in my bank at least three months in advance the necessary capital for condo payments to act as a buffer.

In the final article of this series I will be talking about my final thoughts on your first condo purchase here in the Philippines.



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