Want to cut your 30-year Pag-IBIG loan down to 15 years? You are in the right place!
This is a “hidden gem” of financial advice because most people don’t realize how much money they waste on interest. In the banking world, this is called Loan Pre-payment, and it is the fastest way to become debt-free.
Most people get a 30-year loan because the monthly payment is affordable. However, in the first few years of your loan, most of your payment goes to interest, not the house.
If your monthly payment is ₱15,000, only about ₱3,000 might be actually reducing your debt (the Principal), while the other ₱12,000 is just interest for the bank!
The Strategy: Pay Toward the Principal
If you have extra money (from a 13th-month pay, a bonus, or a side hustle), don’t just “pay in advance.” Instead, tell the lender you want the payment applied directly to the Principal.
Why this works:
- Reduces the Base: Interest is calculated based on your remaining balance. If you drop the balance, you pay less interest next month.
- Shortens the Term: Every ₱1,000 you pay toward the principal today could save you ₱3,000 to ₱5,000 in future interest and knock months off your loan.
- Compound Savings: By consistently adding even just ₱2,000 extra per month specifically for the principal, you can turn a 30-year loan into a 15 or 18-year loan.
How to do it in the Philippines:
For Pag-IBIG: When you pay at a Pag-IBIG branch or via Virtual Pag-IBIG, you must specify that the overpayment is for “Principal Increase.” If you don’t, they might just treat it as an “advance payment” for next month, which doesn’t save you any interest.
For Banks (like BDO): You usually need to visit your branch of account and sign a form to apply a lump-sum payment to the principal. Ask for a “Loan Re-computation” so you can see your new, shorter term!
⚠️ Important Note: Always check your loan contract for “Pre-payment Penalties.” Most modern loans allow you to pay extra on your anniversary date or at any time for a small fee (or no fee at all), but it’s best to verify first.
