You know, with the world’s central banks slashing interest rates to try to get world economies moving again, prime interest rates in many countries are moving close to 0%. I believe that the US Prime rate now is only slightly over 1%, and other countries are moving in that direction. Of course, consumers like you and I are not able to get rates like that, but rates for individuals are getting lower because of the Prime Rate slash. Of course one of the reasons why the central banks are moving in this direction is so that banks will be able to get money cheaply, and thus start making loans again. That’s what keeps the economy going.
I was kind of surprised when I got a little primer on how much interest rates are here in the Philippines. As I told you earlier this week, I visited some Condos here in Davao with a friend last weekend. I picked up some of the sales literature, just for informational purposes. As I looked at it, I found the interest rates quite high. I had known that interest rates were high in the Philippines compared to the West, but I didn’t realize how high they were.
To buy one of these condo units, you were expected to put a downpayment of 20%, and then it could be financed for as long as 9 years, but no longer. Mortgages in the west are typically much longer than that. I know that in the States the 30 year mortgage has been the kind of mortgages for more than a generation now. Some people are going as low as 15 years, but lower than that is uncommon.
Can you guess what the interest rate was for a 9 year mortgage? 19%. Yes, Nineteen Percent! In the west, many credit card rates are lower than that! For a 3 year mortgage, they were offering rates as low as 14%. My goodness! The thing that is really interesting is that these are in-house rates. In other words, the developer of the property will self-finance the units for you. They are a big company and certainly have the cash to do this. Generally, in-house financing like this is cheaper than banks offer, so this really surprised me. Some in-house rates in the west are high, but that is generally when they are offering financing to people who are not good credit risks.
Last year I wrote an article here on the site called “Cash is King” talking about how cash is the best way to do things in the Philippines. Forget credit. Throw out the credit cards. Cash talks. This example just shows how true that is!
As most of you know, Feyma sells property on Samal Island for a gentleman that we know. Know what? He is willing to finance property at NO INTEREST! Big difference, huh?
Not only is now not a good time to take on debt, but at 19%, I think I’ll just pay cash!