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Buying a Condo: Cash vs. Loan

When buying a condo in Manila likes Amaia Skies Avenida and Amaia Skies Sta. Mesa, you have two basic options—buying it in cash or financing it through a home loan.

Some experts, however, argue you don’t have to pay for a condo unit in cash even when you can because you aren’t sure what will happen to your financial health. The money you y can be used for other important things like a college education, medical emergency or investments so you can better leverage your assets.

Makes sense, right?

This doesn’t mean buying in cash isn’t always the better option. Yes, there are benefits to buying a condo unit in cash. The same rings true for taking out a mortgage. Both have their own potential downsides.

Buying a condo in cold cash

Admittedly, buying a unit in cash is the most favored approach of any developer or seller due to the advantages for both parties. The most noticeable gain is you don’t need to pay interest since no mortgage is involved. Making payments to the principal is not required as well. Financial-wise, developers also offer  discount for spot cash payers.

This also means  you’ve already built 100% of the home equity. And since the condo title certificate is under your name, you can use it to secure another type of loan for whatever purpose you may have should you need it. If the needs arise, you can sell the unit immediately since it is not tied to a mortgage.

Condo ownership is a process but the processes involved when buying in cash is minimal compared to when buying it through a financing option. Because of this, you can close the transaction and move into the new unit faster than expected. It also means renting out the unit more quickly should you want to lease it out to others.

You can also save yourself the time and headache of dealing with the paperwork required to secure a home loan in-house, through a bank or through Pag-IBIG. The process alone entails processing costs, which become unnecessary when you pay for the unit in cash.

Still, you need to pay for the recurring costs, one of which is the condo monthly association dues. If not fixed, this will depend on the actual size of your unit.

Investors frown at the idea of ‘putting all your eggs in one basket’ and buying in cash is one example of such. That is, if you have no plans of living in the unit for at least five years, you might as well get a mortgage. It’s a dangerous business to sacrifice your liquidity. It’s a poor diversification of investment portfolio.

In sum, buy a condo in cash if:

Buying a condo unit through a loan

Obtaining a mortgage is the traditional approach to purchasing a unit. It’s a default option to many not because they prefer it that way, but because it’s needed. A mortgage is a fact of life.

And the #1 downside is the interest. The amount is very significant considering the total loanable amount. But you can always lower the interest payments if you can pay a higher down payment. Further, you need to pay for the principal and the interest at the same time. Your home equity will only depend on principal payments which mean that your actual unit ownership is limited.

Even before you set foot on your unit, you still need to shoulder processing fees that will certainly add up to the total cost. And we’ve already mentioned the recurring costs involved.

However, it gives you more liquidity and lesser risks. Let’s assume something goes wrong with the residential building. It pays that you’ve only invested 20% of your money and not 100%. That’s the main reason why you should choose a reputable real estate developer—to ensure that the unit and the building are in optimal conditions and are future-proof.

In sum, buy a condo through a mortgage if:

Getting the best of both worlds

Is it possible to take just the pros of both and minimize the cons? Absolutely! You can pay for half of the total contract price and enroll the other half in the home loan. Consider choosing a shorter loan tenure, too.

This way, you’ve already invested in 50% of the home equity and you will pay lower interest because you only have to qualify for the remaining 50% of the amount. Some developers offer a sizable discount for those who will pay half of the contract price of the unit so it’s still a win-win.

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