Amortization

Amortization is the process of gradually paying off a loan through regular installment payments over a specified period. Each payment consists of two components: principal (which reduces the loan balance) and interest (the cost of borrowing). In Philippine real estate, amortization typically refers to the monthly payments on a housing loan spread over 5-30 years.

For a standard amortizing loan, monthly payments remain constant throughout the term (assuming fixed interest). In the early years, most of each payment goes toward interest; over time, an increasing portion goes toward principal. Example: a PHP 3M loan at 7% interest for 20 years = PHP 23,262/month. In month 1, approximately PHP 5,750 goes to principal and PHP 17,512 to interest. By year 15, approximately PHP 15,000 goes to principal. This is called an amortization schedule, and borrowers should request one from their lender.

The amortization factor is a multiplier used to calculate monthly payments based on the interest rate and loan term. Common factors: 7% for 20 years = 0.00775 per PHP 1,000 of loan; 7% for 25 years = 0.00707; 7% for 30 years = 0.00665. To calculate monthly payment: Loan Amount u00d7 Amortization Factor u00d7 1,000. Many online calculators and bank websites provide amortization calculators for Philippine housing loans.

Philippine housing loan amortization is governed by the Truth in Lending Act (RA 3765), which requires lenders to disclose the total amount to be paid, the finance charges, and the net proceeds of the loan. The BSP regulates interest rate disclosure and fair lending practices. Pag-IBIG Fund, banks, and in-house financing each have different amortization structures. Buyers should compare total amortization payments (not just monthly amounts) across lenders to find the best deal. Under Philippine law, borrowers have the right to prepay their loans, though prepayment penalties may apply during the fixing period.

Bank Housing Loan, Loan Fixing Period, Pag-IBIG Fund, In-House Financing, Interest Rates