Why should you pay the principal amount slowly in your PAG-IBIG housing loan?

February 04, 2014

In 2010, I availed a housing loan thru PAG-IBIG,  payable for 30 years for 5, 620 monthly. The principal amount is worth 750, 000.  It means if you have that certain amount on hand, you could fully pay PAG-IBIG on the spot without waiting for 30 years.

One time, when I computed my monthly amortization, multiplied by 12 months, then multiplied by 30 years, my house would reach  2 million something. My eyes bulged out a bit.  Imagine the huge difference? 750, 000 and 2 million?

I have been paying P5,620 per month for almost 4 years now, and I notice it will only deduct 500 plus from our principal amount every month. Question? Where did the 5000 pesos go?  I assumed, it just went to interest and fire insurance alone. It seems like I'm just paying the interest forever. And for four (4) years of paying, the principal amount went down to only 723, 000.

A few days after contemplating, I headed to PAG-IBIG office, Davao branch, to personally talk to one of their staff to seek advice how to lower my loan interest rate. She told me to pay the principal amount little by little so the interest would be reduced as well as the number of years.  As a Math teacher, and out of curiosity, I asked her how they computed that thing. She just said hurriedly, (since there's another person next in line)  "just keep paying the principal amount on top of your monthly amortization so Diminish Interest Rate will be reduced. Her explanation left me hanging.

In spite of the confusion, we decided to pay P275,000 to the principal amount. Then it went down to 447,000.  And we waited for the SOA (statement of account) to be delivered to our home to see how much more was reduced to our Principal Amount.  A month later, what had been reflected on the SOA was another 2,400 plus was deducted from our Principal amount. Month by month, I noticed that the deduction was consistent as reflected again in the SOA.

Final Thought

In my opinion, paying the principal amount slowly is advantageous. Aside from I can save money in the long run,  I can also fully pay the house fast without waiting for 30 years of agony.  Eventually,  I can say I have a house of my own where my family can live freely and securely without worrying of debts and obligations.

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