Fixed versus Variable, or Split

Isa na namang nagbabagang tip. Hindi, hindi po tip sa karera. Tip ito kung paano kayo makaka-menos sa pagbayad ng interest rates sa bangko sa inyong mga mortgages. Banks won’t tell you about this, unless you ask them, because it is not to their advantage.

When you borrow for a home loan, the bank will ask you what interest rate you prefer –variable rate or fixed rate. Kapag variable ibig sabihin paiba-iba depende sa prevailing rates. Sa kakalukuyan, 9.55% per annum ang prevailing variable rate. Bukas makalawa maari itong magtaas o magbaba depende sa market conditions. Kaya maaaring paiba-iba din ang dapat mong bayaran monthly. Mahirap mag-budget. Ang adbantahe naman pwede kang mag-advance payment anytime without penalties. Normally, variable rate is good if you have no intention of keeping the property longer than 6 months, because you can pay off the bank anytime with no penalty.

Most people, however, choose fixed rate. Fixed rate dahil nakapako yung rate within a given period. Sa kasalukuyan, eto ang fixed rates ng karamihang bangko.

1. Fixed for 6 mos 8.50%
2. Fixed for 1 year 8.40%
3. Fixed for 2 years 8.10%
4. Fixed for 5 years 7.75%

Ang advantage ng fixed rate, una, usually mas mababa siya sa variable rate. Pangalawa, fixed din ang payments mo, kaya madaling mag-budget. Pangatlo, may protection ka kung sakaling magtaasan ang bank rates, dahil di tataas ang amortizations mo. Flipside nito, kung magbagsakan naman ang mga rates, lugi ka, kasi di bababa ang payments mo. Fixed nga eh. Isa pang disadvantage, di ka pwedeng mag-advance payment ng lump sums without incurring a penalty from the bank.

Halimbawa, ang utang mo $200k. Karamihan sa mga bangko papipiliin ka lang ng isang rate. Looking at the above rates, 5 years ang lowest. Ok sana ito pero disadvantage naman nakatali ka sa 5 years contract. Kung sakaling bumagsak ang mga interest rates bago matapos ang 5 years, hindi ka makaka-avail ng bagong rates. Isa pa di ka basta makakabayad ng lump sum within the 5 year period. Kung pipiliin mo naman yung 1 or 2 years fixed, it means you'll be paying (unnecessarily) a higher interest rate.

The SOLUTION: Something your banks will NOT tell you about, is to SPLIT your loan into different rates. Halimbawa:

• $100k fixed for 5 years
• $80k fixed for 1 year
• $20k variable rate
  

What are the advantages of splitting?

Mainly, flexibility. You can take advantage of the lowest rate which happens to be the one for the 5 years fixed and at the same time by putting some money into variable or fixed for lesser number of years, you have the option of paying lump sums in advance and taking advantage of any lowering of interest rates. In the above split, maaring iniisip mo na kaya mong bayaran soon yung 20k. Eg. You expect to sell some properties overseas. Iniisip mo rin na after 1 year baka bumaaba ang interest rates. Therefore after 1 year kapag expired na yung contract for the $80k you can renegotiate for a lower interest rate.

Splitting your loan into different rates allows you to take advantage of the best possible combination of rates and gives you more flexibility to handle your repayments. Malinaw ba? Okidokes, split na muna ako.