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Choosing a Payment Scheme

Posted by admin on June 3, 2015
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What Payment Scheme to get for your chosen property?

One of the most significant advantage of pre-selling condominiums is the several payment options you may choose at 0% Interest until Completion. These schemes ranges from CASH TERM – NO DOWNPAYMENT TERM. This article aims to help prospective buyers in deciding which payment option to get given their lifestyle, financial capacity and what will benefit them more TODAY, upon Completion Date and in the FUTURE.

Cash Term:

This option is of course where you’ll get highest possible discount for the unit. Highly recommended for those with ready cash / financially liquid with no immediate plans of investing the said funds elsewhere. Investment Wise, you’ll definitely have a huge advantage against other unit owners. Imagine let say the Unit Price is Php 6,400,000 those who got No Downpayment Terms will get this at the said price while CASH TERM with 15% Discount will get the unit at Php 5,440,000. A huge Php 960,000 difference for Executive Studio Unit.

This pricing difference is also owner’s advantage if owner decides to sell the unit later on. Owner got it at a lower price therefore he can sell at a lower price compared other unit owners without necessarily sacrificing his profit from property value appreciation.

With the example above, others got it at Php 6.4M while CASH TERM BUYER got it at Php 5.4M

Let say 5 years later the Fair Market Value of the said unit is Php 8M, those who got it at 6.4M will have Php 1.6M profit however CASH TERM BUYER can sell it at Php 7M and still get the same profit of Php 1.6M. Of course CASH TERM BUYER can sell it fastest since he has the flexibility to price it lower.

Payment Scheme with Downpayment:

These are the next best option to get higher discounts and lower total contract price. There are several Downpayment Schemes to choose from: 30% DP, 20% DP, 10% DP. The most ideal and recommended depends entirely on Buyers available funds. The higher Downpayment the better since it means higher discount.

The Golden Rule is maximize payment terms by paying more during pre-selling which is at 0% Interest.

One of the biggest misconception of some BUYERS is that they think its better to give minimum during pre-selling and just Bank Finance Turnover Balance. This is completely wrong and disadvantageous to the BUYER. A BUYER is recommended to pay more during pre-selling to make TURNOVER BALANCE as low as possible. Turnover Balance is the amount you can place under Bank Financing, the higher the amount the higher INTEREST you will incur from the loan.

To give an example, a Turnover Balance worth Php 5M under Bank Financing for 15 Years at 9% per annum would have a monthly amortization of Php 50,713.33 The total amount you’ll pay for the 15 year loan period is Php 9,128,399.26 and the Total Interest from this amount is Php 4,128,399.26

With the same Loan Details above but only Php 3M Turnover Balance, the monthly amortization will be Php 30,428.00 and total amount paid for 15 year loan period is Php 5,477,039.55, the Total Interest from this amount is 2,477,039.55

Comparing both, the Turnover Balance Php 5M would mean higher INTEREST amount against Php 3M Turnover Balance. The difference in INTEREST AMOUNT is exactly Php 1,651,359.71 This amount is INTEREST PAYMENT ALONE.

As you can see the higher Turnover Balance you have, the more DISADVANTAGEOUS it is for the BUYER

No Downpayment Scheme:

This payment option should be the resort of those who cannot give immediate Downpayment or is planning, would need to invest the said funds immediately elsewhere. This is the payment option where in Developers give highest payment flexibility to BUYERS however, reality wise this is only ideal if you’re investing your funds elsewhere. If you’re funds are just sitting in the bank then might as well just use them for Downpayment to get higher discounts, lower Total Contract Price and lower Turnover Balance.

This option however comes very handy for those with no immediate funds for Downpayment. It gives a wider status of BUYERS who’ll be able to afford to purchase their own condominiums.

At the end of the day, all these payment options can work best depending on the BUYERS status, liquidity, purpose, lifestyle etc. What’s important is to fully understand the payment scheme, turnover balance and figures once Bank Financing occur.

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