LOAN TAKEOUT

Banks would probably hate me for posting this.

When people have "floating rate" loans, the interest rate should ideally go down when benchmark rates go down (conversely, loan interest rates increase when benchmark rates increase). But banks don't lower loan rates automatically.

[Benchmark rates = borrowing/lending rates of the BSP or prevailing market rates of government securities that lenders use as a basis for their own rates.]

Thus, borrowers "refinance" the loan. This term pertains to renegotiating the terms of an existing loan, such as interest rates, payment schedules, or other terms, usually when benchmark rates go down. This practice involves re-evaluating the borrower's capacity to pay.

But what if interest rates remain "higher for longer," such as what's happening now?

Would it be possible to borrow money from another (financially stable) bank that offers a lower interest rate and pay off the existing loan, provided that the collateral will be transferred to the second bank?

That's precisely what a "loan takeout" is. And I've confirmed with a major bank that they indeed do this. (I'm reluctant to say which bank this is.)

Applying for a loan takeout involves the standard loan application process plus a history of payment for the last six months and a statement of account from the mortgagee bank.

I expect the original lending bank to make it difficult for the borrower. However, if all it's going to take is a few minutes every other day to follow up, and you'll, in turn, save a considerable amount of money–I think it's worth it.

So, do a market survey of banks' prevailing loan rates and ask about their process for a "loan takeout."

Good luck.