PAG-IBIG vs Bank Loan – Which Is Better? 4 Things to Know Before You Commit

pag-ibig or bank loan which is better

So, you want to live your ultimate dream and buy a home. But choosing the right housing loan could be a dilemma for you.

Which one should you choose? You could take the in-house financing option, but the interest rates are higher. You can also apply for a home loan with the commercial banks, but most of them have stringent qualifications.

The government offers PAG-IBIG and SSS home loans, but what are the pros and cons?

Hopefully, this guide will help you weigh in, which is a better option for you based on your financial capacity.

What is the Home Development Mutual Fund (HDMF or known as PAG-IBIG Fund)?

If you’re an active member and contributor of PAG-IBIG, there’s a higher chance for you to secure a home loan but subject to their terms and conditions and requirements.

PAG-IBIG is a government-owned and controlled corporation under the Housing and Urban Development Coordinating Council (HUDCC). The HUDCC aims to provide affordable homes and financing to Filipino families, whether locally employed, self-employed, or employed overseas.

PAG-IBIG memberships give you access to salary loans. Once you’re a member, you need to pay the monthly membership contributions.

For those employed in the Philippines, the employers are responsible for paying the monthly contributions, which are automatically deducted from the employees’ monthly payroll.

If the employees’ monthly compensation is above P1,500, the employee-employer share ratio is 2:2 (in percentage). If it’s below P1,500, the ratio is 1:2

For example, if you’re earning P5,000 per month, the employer’s share is P100 (P5,000 x 0.02 = P100). You’re also paying P100 with your employer for that contribution.

Members of PAG-IBIG get to enjoy the perks of securing short- and long-term loans, calamity loans, and housing programs.

The interest rates as of this writing are as follows.

** Quoted rates are subject to change, visit PAG-IBIG news and events for updates

Interest Rate (per annum) Fixed pricing period
5.375% 1 year
6.375% 3 years
7.270% 5 years
8.035% 10 years
8.585% 15 years
8.800% 20 years
9.050% 25 years
10.00% 30 years

Should You get PAG-IBIG or Bank Loan?

One of the critical considerations when securing a housing loan is availing the ones that have low interest rates and fixed rate, up to 1-5 years for banks.

PAG-IBIG loans have fewer restrictions for applicants. However, banks are diligent in conducting their background checks and will require you to submit various supporting documents.

In terms of interest rates, banks offer low-interest rates with a fixed rate for about 1, 2, 3 and 5 years (10 years for other banks, but not common) compared to PAG-IBIG that offers a fixed pricing period of up to 30 years.

The latest interest rates of PAG-IBIG are roughly the same and competing against bank rates. BDO home loan interest rate for 1-year fix pricing period is 6.5%.

PAG-IBIG Loan Bank Loan
Interest Rate

(per annum)

5.35% – 10% 4.99% – 10.12%
Fixing period 1-30 years 1-5 years (up to 30 years to EastWest Bank)
Repayment amounts Relatively consistent because of the stable interest rate Varies as fixed rates are valid either 1,2,3 or 5 years
Loan Appraisal Value 90-100% 70-80%
Maximum loan amount Up to P6,000,000 or 80% of the total accumulated value (TAV) Varies, either in the amount (P10,000,000 for EastWest Bank Home Loans) or 70-80% per cent of the appraised value of property
Miscellaneous fees for processing P3,000 + More or less P15,000
Processing period Up to 15 business days or so 5-7 business days

To summarise,

  • PAG-IBIG offers you slightly higher interest rates, but offer you fixing period of up to 30 years.
  • Banks offer you lower interest rates, but the fixed rate is only valid for 1, 2, 3, 5, or 10 years at best.
  • You can borrow as much as P6,000,000 from PAG-IBIG, but you need to meet the qualifications as an active member
  • PAG-IBIG is more lenient in terms of requirements for first-time applicants.
  • PAG-IBIG processing fees cost lower than bank loans, while the processing time is shorter on bank loans (and much better to submit all required documents to avoid delays).

4 key differences between PAG-IBIG and bank loans

#1 Loan Purposes Slightly Differ

Securing a home loan will require you to disclose the purpose of the loan. For most commercial banks and also PAG-IBIG, they consider a new or re-purchase of a property like a townhouse, condo unit, completion of home construction and refinancing of your property.

Meanwhile, PAG-IBIG allows home loan applicants to purchase a lot, not exceeding 1,000 sqm. Commercial banks offer other services such as home equity.

#2 Interest Rates and Maximum Amount to Borrow

PAG-IBIG offers its members access to borrow up to P6,000,000 and for those who are earning minimum wage, they can enjoy a lower annual interest rate per annum from 3% to 4.5% under the Affordable Housing Program.

However, to be eligible for this offer, the home loan applicant must have less than P15,000 as gross monthly income in the NCR region and P12,000 outside Metro Manila. They can avail up to P450,000 of housing loan only.

Interest rates in commercial banks are lower than PAG-IBIG but have limited fixed rate terms that are good or as valid as 1, 2, 3 or 5 years, unlike PAG-IBIG that offers up to 30 years.

Acquiring an interest rate with a fixed term of 15 years means you’re spared from the market’s fluctuating rates (if your loan tenure is 15 years), which are usually higher than your original rate when you apply for the loan.

Once your fixed rate from the bank expires, you are at the mercy of the market’s prevailing interest rate. And that could be the same or higher, depending on the condition of the market and economy.

#3 PAG-IBIG loans are better when it comes to repayment options

Repayment is the process of repaying the lender the amount you borrowed, including the principal and interest rate based on the contract. When it comes to PAG-IBIG loans, the repayment scheme is less complicated when it comes to the computation as the fixed rate is consistent for the loan tenure.

You can pay in a lump sum or at any time pay it in full or you may wait until its maturity date, the maximum of loan tenure is 30 years.

However, when it comes to home loans in commercial banks, the process and the computation is quite complicated and varies because the fixing period is shorter and you also need to pay for the early repayment fee. Banks can provide you at best 1-5 years of the fixed rate.

If you have a stable income, PAG-IBIG home loan is a good option if you don’t want to mess with the fluctuating rates from the banks once the fixing period ends.

#4 Banks have stricter requirements and qualifications for borrowers

Compared to the list of requirements and qualifications between PAG-IBIG and commercial bank home loan applicants, the former is more lenient even to the new or first-time applicant.

PAG-IBIG members should have 24 months of contribution and no existing multi-purpose loans in arrears. Members can also pay 24 months of that contribution in a lump sum. And no history of PAG-IBIG loan had been cancelled, foreclosed, or bought back.

On the other hand, if you apply for a home loan in banks, you don’t have to be a member of PAG-IBIG, but your monthly family income must be more than P40,000 and have a stable income.

Business owners and the self-employed must submit requirements to prove the profitability of their businesses or profession over the course of at least 2 years, including financial statements and other supporting documents.

PAG-IBIG or Bank loan – what’s the verdict?

It’s hard to be subjective when it comes to these two types of loans. However, it boils down to your lifestyle, eligibility, and financial capability.

If you think you can pay off your home loan early, PAG-IBIG is better since you have a fixed rate you can choose based on your loan tenure and the repayment option is less complicated. But, the downside is, you’ll get slightly higher interest rates than most banks. If you’re going to stay in your company for long-term, let’s say 10-15 years, then it’s also a good way for you to take advantage of your employer’s contribution to the monthly membership at PAG-IBIG.

But if you understand the housing market and you know how you can refinance your home after your fixing period, a bank loan is a better option. You get to enjoy lower rates, but you must be aware of the terms and conditions when it comes to repayments and the implications if you miss paying your monthly amortization.

The last thing you would want to have is a bad credit history, right?