Closing my mortgage

We just got approved for a 25-year, 11% fixed-rate, P4 million mortgage. That translates to around P44,000 per month. That’s actually a good deal. The total cost of building the 407 sq. m. house is around P5.2 million, on a lot that we already own. By US standards, the house is quite cheap. But the mortgage is pretty steep. Let’s dissect everything:

Home price
In the US, the median home price is $213,900 in 2005. But it can go upwards of $1 million. Our house, if you include the price of the lot, is approximately $155,800. Of course, ours is inherently cheaper given the more minimalist modern design (meaning lesser and cheaper materials) and the sub-urban location (on the fringes of the metropolis). Home prices in more upscale neighborhoods can reach California price levels.

House size
Single-family houses in the US have ballooned from an average size of 983 sq. ft. in 1950 to today’s 11,000 sq. ft. McMansions. But the average is around 2,349 sq. ft. Our house is about 4,380 sq. ft. Huge, you say. But the livable space (i.e. minus semi-enclosed areas like the garage and open spaces like the entrance court) is just 2,830 sq. ft. Surprisingly, our house is slightly larger than the average US home. But certainly nothing like those McMansions.

Average price per square footage
A rather simplistic division of the US median home price over the average home size will yield an average price per square footage of $91. Our house is around $55, a little more than half the price, which makes it a bargain.

Mortgage
In the US, the average mortgage is $230,000. I got mine (in this country, better known as “housing loan”) at $93,000. Technically, I’m paying less for a bigger home. So yes, it’s cheaper to live in a Third World country, especially in the exurbs.

Term
The typical term for US mortgages is either 15 years or 30 years. Here, it’s still 10 years, with just very few banks offering up to 25 years. Even a 10-year fixed rate was a relatively recent standard. A few years back, you can’t get any fixed rate longer than 5 years!

Monthly amortization
The average mortgage payment in the US is $1,687. Our is about $1,023. If you’re wondering why I’m paying just a few hundred dollars less when my mortgage is more than half less, read on.

Interest rate
Now, here’s where it gets lopsided. The national average mortgage rate in the US is only 6.26% fixed for a 30-year term. My 25-year fixed rate is 11%, almost twice. And that’s already one of the lowest in the market! No wonder the vast majority of residents in this country rent, not own their homes.

That’s just how things go. In the crazy unstable 80s, rates were double, triple, quadruple. So 11% is like “cheap” already. But as you can see, it’s most certainly not. But I’m not going to wait for a 6.26% fixed rate for 25 years. It’s probably not going to happen in my lifetime.