First homes owned through mortgage loans may soon be interest-free

Housing projects in the Philippines. Photo courtesy of Asia Green Buildings.

MANILA — Filipino families who buy or construct their first home through mortgage loans may soon not need to pay loan interest.

Rep. Roy M. Loyola (5th District, Cavite) said by removing the interest rates on mortgage loans, potential homeowners will only have to pay the principal amount of their housing property, and thus avoid the stress of dealing with ballooning interest payments.

Moreover, the interest relief will provide tax savings for the individual which he or she can use for other things according to the lawmaker.

Loyola raised this proposal through House Bill 5091 or the proposed “Home Mortgage Interest Relief Act” which aims to address the shortage of decent housing and give Filipino families the opportunity to have a place of their own to call home.

At present, Loyola said more and more developers are offering affordable housing options through low down payments and easy payment schemes for potential home buyers. Despite this, however, fewer buyers are lured into buying their own homes because of the financing aspect, more specifically the interest rates imposed by banking institutions and by developers themselves.

“This is where the government should step in by providing an incentive to those who would be purchasing their first family home. The proposal aims to aid Filipino families in acquiring their first family home by providing for a Home Mortgage Interest Relief which is an individual income tax incentive,” said Loyola.

He explained this tax incentive will make any interest accruing within a taxable year from any loan obtained for the purpose of acquiring or constructing a family home deductible from the gross income of a qualified taxpayer. By removing interest rates in the equation, he said potential homeowners will only have to pay the principal amount of the housing property.

Loyola said due to the high cost of acquiring one’s own residence, more Filipinos are opting to rent instead. Based on an initial study conducted by the Statistical Research and Training Center of the National Economic and Development Authority (NEDA), there are approximately 1.5 million households, or 7.2 percent renters out of the total 21.5 million households nationwide according to him.

“While Filipinos can invest in and eventually acquire a property which they can consider their own home, they instead use their finances to pay for their monthly rents. Home ownership therefore remains unattainable for them,” said Loyola, a member of the House Committees on Constitutional Amendments, Southern Tagalog Development and Justice, among others.

House Bill 5091, now pending at the Committee on Ways and Means chaired by Rep. Romero S. Quimbo (2nd District, Marikina City), provides it shall be the State policy to encourage home ownership and to provide financial assistance to Filipino families desiring to have their first family home.

The bill provides for the granting of Home Mortgage Interest Relief for the first family home by amending Section 34 of the National Internal Revenue Code of the Philippines, as amended.

The amendment to Section 34 provides that there shall be allowed deductions from gross income to include Home Mortgage Interest Relief, so that “any interest to be paid or accruing within a taxable year from any loan obtained for the purpose of acquiring or constructing a qualified taxpayer’s first family home, as may be defined by existing laws, and/or rules and regulations to be issued for the proper implementation of this Act.”

The bill defines Mortgage Interest Relief as “an itemized tax deduction that allows homeowners to deduct the interest they pay on a qualified mortgage loan used for the purchase or construction of their first family home.”

It defines first family home as “the first dwelling house, either bought or constructed, and used as the primary residence of a family or by an unmarried head of the family.”

Moreover, the bill defines Qualified Mortgage Loan as “a housing loan from any reputable bank operating in the Philippines, obtained for the purpose of purchasing or constructing a family home, and whose loan amount ranges from Php400,000 to Php2,500,000.”