My net worth update shows an item for equity on condo – I was in the process of paying for the equity of my condo.
I have been over-paying the equity after reading all the horror stories on Skyscraper regarding developers who are quick to charge a huge penalty for late payments. Before I knew it, I had finished paying the equity, 5 months ahead of time.
Using the app Financial Calculator, I computed the possible total interest and monthly amortization with varied terms (3 or 5 years because I prefer a short term loan) that may be imposed through Pag Ibig financing. I compared different loanable amounts and the corresponding total interest. Obviously, the more I paid off the gross selling price now (without interest during the equity period I might add!), the lesser the loanable amount would be. Lesser loanable amount means lower interest I have to pay.
SIDEBAR: Don’t be deceived by financing institutions, which offer low monthly payments, because these usually are for long term. Long term equals more payments equals more interest payments. Always ask for the gross loan amount (inclusive of interest). This will help you determine how much interest (the cost of borrowing money) you actually have to pay. Also ask for any and all fees related to the loan. Note that the truth in lending act requires the disclosure of all finance charges imposed on the borrower.
I decided that I would be very comfortable financing (i.e. borrowing) only up to PhP 250,000.00. So I had a check prepared worth half a million pesos and paid it to the developer.
I was aware that turnover would be delayed by about a year. I negotiated with the developer to pay off the rest of the condo price up to turn over, without interest. This way, I won’t need to finance anything and won’t need to pay interest!
Opportunity cost isn’t that high
On the downside, by throwing so much cash on my condo (which won’t earn interest or any form of income and which I won’t be able to live in until a year later) I forgo opportunity cost. That money could’ve earned dividends or capital gains from stocks or earn interest. However, in this bear market, there isn’t much profits to be made. So I don’t feel that bad because I won’t be foregoing that much lost profit.
No threat of foreclosure hanging over my head
On the plus side, there will never be a threat of foreclosure hanging over my head because I will essentially be buying the condo in cash. Of course, I have to pay off the balance remaining (about PhP 247,000.00) in a few months before the turnover. The pressure is definitely on because of this time element. Haha.
Check your privilege
I must admit though that I’m privileged because my parents have committed to help me out in the event that I’m unable to meet this obligation by turnover time. While this relieves pressure, it doesn’t lessen my motivation to pay off the condo by myself.
Huge property purchase as motivator
When I started this condo purchase in 2014, I only hoped to pay at least the minimum equity (30% of gross selling price) in order to qualify for a loan. I never would have expected to pay almost 80% of the purchase price.
In so doing, I was evidently disqualified for a housing loan with BPI (which requires a minimum of PhP 500,000.00 loanable amount). I also became disqualified from a Pag Ibig loan, which requires at least 70% loanable amount, or so the developer tells me. In any event, it was a happy problem for me. I was apparently too rich for a loan! Lol.
Needless to say, thinking about my property purchase and the hefty price tag motivated me to work harder and save more. I streamlined my budget and cut costs where needed. I hardly bought any new clothes and hardly went out, if at all. I started blogging to share my financial literacy advocacy.
My life was certainly a lot different in Makati when I had zero responsibility – no large monthly payment to think about and no threat of penalties or rescinded sale contracts for failure to pay. I had no projects on the horizon and so I wasn’t that motivated to save a lot.
Buying real property like a condo isn’t perfect (especially now that I’m married). I had bought it for future rental purposes and marriage wasn’t in my plans. But life happens and I’m always glad to see where my money is going.
Had I not made this huge purchase, I really doubt whether I would have saved such huge amount. Looking back, my priorities then were just to book a plane ticket and fly somewhere and travel, or go shopping and buy expensive bags. I’m so glad my money went somewhere useful.
By the time the condo becomes available in a year or less, it would be fully paid. With no more monthly payments, I would then have the option for another project – I’m eyeing a house and lot. In a perfect market, the condo would produce a monthly cash flow from rentals, which can then finance my next home. Fingers crossed.
And of course, I’m eyeing my next goal of making my second million by 2017.
Any present or future project that motivates you?
20 something lawyer