LOWER YOUR MORTGAGE RATE

The BSP has recently cut their benchmark rate by 0.5% over the past two months. Does this mean your existing mortgage rate will automatically decrease?

Unfortunately, no. Banks typically do NOT adjust existing mortgage rates downward in response to falling interest rates. Let me explain.

For instance, here’s an actual example. If you took out a loan in 2021 at a rate of 5.88%, fixed for three years, this rate will stay the same until 2024 (this period is called the "teaser rate"). After this period ends, the new mortgage rate will reflect the current interest rates. Your original 5.88% loan rate could jump to 9.8% in 2024. This means your loan will switch from a "fixed" interest rate to a "floating" interest rate, adjusting upward if prevailing rates increase.

However, banks do not lower home loan rates when prevailing interest rates drop, as is the case today. Only those applying for new loans can benefit from the reduced rates.

So, how can you take advantage of the lower interest rate?

Through refinancing, or in Philippine terms, a "bank take-out." This involves applying for a new loan with a different bank and having that bank pay off your original lender. You then repay the old loan (with the higher 9.8% interest rate) using a loan with a lower interest rate. The collateral is transferred to the new bank.

How difficult is it?

From what I've heard from my former colleagues in the banking industry, banks may delay your pre-payment requests, stall on computations, or refuse to coordinate with the other bank. However, the savings make it worthwhile.

If your bank continues to make it difficult, file a complaint with the BSP at consumeraffairs@bsp.gov.ph. You'll be surprised at how quickly banks respond to your request.