Legal Interest on Delayed Housing-Amortization Payments in the Philippines (A Practitioner-Oriented Primer, updated to 18 June 2025)

1. The Core Concepts

Term	Short Definition	Governing Source
Conventional Interest	Interest stipulated by the parties in a loan or contract to sell (CTS).	Art. 1956, Civil Code; BSP Circular 905-82 (usury ceilings now lifted).
Legal Interest	Interest the law grants when (a) the parties said nothing, or (b) the obligation is already in delay and courts must fix the rate.	Art. 2209, Civil Code; Nacar v. Gallery Frames, G.R. 189871, 13 Aug 2013.
Penalty/Default Charge	A separate civil obligation that penalizes delay (may be a flat amount or a rate over and above interest).	Art. 1226, Civil Code; PD 957 & HLURB/ DHSUD rules; Pag-IBIG Circulars.

Key starting point: Even after the Usury Law (Act 2655) ceilings were “suspended,” the concept of legal interest—fixed by the Supreme Court—lives on.

2. Evolution of the Legal Interest Rate

Period	Legal Interest for Loans or Forbearance of Money	For Damages (unliquidated claims)	Basis
Before 1 Jan 1980	6 % p.a.	6 % p.a.	Art. 2209, Civil Code (default rule)
1 Jan 1980 – 30 June 2013	12 % p.a.	6 % p.a.	CB Circular 416 (29-7-1974); jurisprudence starting with Reformina v. CA (1985)
1 July 2013 – present	6 % p.a.	6 % p.a.	BSP-MB Res. No. 796 & Circular 799-13; Nacar doctrine

Take-away: Since 1 July 2013, the legal rate is uniformly 6 % per annum, simple interest, whether the obligation is a loan/forbearance (e.g., housing amortization) or a judgment award of damages.

3. What Exactly Is an “Amortization” in Philippine Housing Deals?

Developer-Financed CTS / Contract-to-Sell The buyer pays monthly amortizations directly to the property developer before title transfer.
- Governing sectoral rules: Presidential Decree 957 (Subdivision & Condominium Buyers’ Protective Decree) and its 2009 IRR; DHSUD/HLURB Board Res. 921-15 on interest and penalties.
- Typical contractual clause: “Interest at ____ % per annum on the outstanding balance; penalty of 3 % per month on amounts in arrears.”
- Regulatory limits: PD 957 & subsequent memoranda prohibit “usurious or unconscionable” rates but set no hard cap; reasonableness is tested under Art. 1229 Civil Code and public-policy power of DHSUD.
Pag-IBIG Fund (HDMF) Housing Loan Amortizations are paid to Pag-IBIG or its accredited servicer once the loan is released.
- Interest schedule is fixed or repriced (4.5 % to 10 % p.a. bands as of 2025) depending on loan value and chosen repricing period (1, 3, 5, 10, 15, 30 yrs).
- Late-Payment Penalty: 1/20 of 1 % per day (≈1.5 % p.m.) on the amount in arrears, under HDMF Circular No. 439-17; this is a penalty independent of the contractual interest that continues to accrue.
- In judicial collection, additional 6 % legal interest applies from finality of judgment until full payment (per Nacar).
Bank or NHMFC-Financed Home Mortgage The Bank (or National Home Mortgage Finance Corp.) lends directly; the buyer signs a real-estate mortgage (REM) and pays amortizations via post-dated checks or auto-debit.
- Rates after the Usury Law suspension are market-driven, provided they are written and mutually agreed (Art. 1956).
- Default Interest Clause: Almost all REMs stipulate “24 % p.a. default interest, compounded” once the borrower is in delay. The courts routinely slash this when challenged as “unconscionable” (e.g., Spouses Abellera v. Spouses Barrera, G.R. 191699, 15 Nov 2017—cut to 12 %).

4. How Courts Apply Interest When Amortizations Are Delayed

Scenario	Pre-Judgment Interest	From Decision Promulgation to Finality	From Finality to Satisfaction
Amount already liquidated (the precise unpaid amortizations are computable)	6 % p.a. from each date of default	6 % p.a.	6 % p.a. (Art. 2212; Nacar)
Amount unliquidated (e.g., damages for lost rent)	None or 6 % at court’s discretion	6 % p.a.	6 % p.a.

Salient jurisprudence

Nacar v. Gallery Frames (2013): pivot case lowering legal interest to 6 %.
Lambert v. Fox (G.R. 215849, 27 Jan 2021): reiterates that even where a CTS stipulates no interest, 6 % legal interest applies upon default.
Briones v. ARC Developers (G.R. 243826, 03 Aug 2022): HLURB/DHSUD awards are likewise subject to 6 % legal interest from the time the developer is in delay.

5. Interaction with the Maceda Law (RA 6552)

RA 6552 grants buyers in CTS arrangements substantial rights when they have paid at least two years of installments.
If the buyer defaults, the seller must grant a grace period: one month per year of paid installment (minimum 60 days by 2025 HLURB rules).
Interest dimension: While the grace period runs, no additional interest or penalty may be imposed (Sec. 3, RA 6552); only after its lapse can default interest apply.

6. Penalty Charges vs. Interest: Why the Distinction Matters

Feature	Interest (conventional or legal)	Penalty
Nature	Payment for use or forbearance of money	Civil sanction for delay
May itself bear interest?	Yes, if stipulated (compound interest) but subject to Art. 1959 (written agreement required)	No, unless expressly agreed and upheld as reasonable
May be reduced by court?	Only if “unconscionable” (Art. 1229)	Yes; courts often cut excessive defaults (e.g., Spouses Fernandez v. FMB Savings, G.R. 210938, 10 Aug 2016)

Rule of thumb: Courts are harsher on default penalties than on interest rates; a 3 % per month penalty (≈ 36 % p.a.) has been struck down multiple times for being punitive and iniquitous.

7. Computation Templates (Illustrative)

Developer-Financed CTS, unpaid amortization of ₱20,000 due 15 Feb 2024 No contractual interest clause.
- Delay period: 16 Feb 2024 – 18 Jun 2025 = 489 days
- Legal interest: ₱20,000 × 6 % × 489/365 ≈ ₱1,607.95
Pag-IBIG Loan, unpaid amortization of ₱12,000 for March 2025
- Regular interest (based on outstanding principal) continues.
- Penalty: (₱12,000) × 0.05 % per day × 30 days = ₱180 penalty for the month.
- If suit is filed, 6 % legal interest thereafter until judgment.

8. Usury Revisited: “Suspended” but Not Dead

Central Bank Circular 905-82 (22 Dec 1982) “suspended” Usury Law ceilings, allowing parties to agree on any rate.
Yet, Art. 1229 Civil Code and Art. 19 (abuse of rights) give courts power to strike down unconscionable rates.
Housing finance is a public interest sector; courts have lowered 36 % default interest to 12 % or even the 6 % legal rate where the rate “shocks the conscience.”

9. Tax Implications

Gross Receipts Tax (GRT): Banks pay 5 % GRT on interest actually collected—not on penalties.
Documentary Stamp Tax (DST): Paid once on the original principal; additional DST does not accrue on penalty interest.

10. Prescription and Collection

Written contracts prescribe in 10 years (Art. 1144).
Each amortization has a separate cause of action; the prescriptive period runs from each due date.
Mortgage action and foreclosure: may proceed simultaneously with or in lieu of a personal action for sum of money (Rule 68, Rules of Court).

11. Compliance Checklist for Practitioners

Verify the Instrument: CTS vs. REM vs. Pag-IBIG loan.
Check Express Stipulations: Any agreed interest and default charge? In writing? Signed?
Test for Unconscionability: If > 24 % p.a. (simple) or > 2 % p.m. penalty, high risk of judicial reduction.
Apply Nacar rules: 6 % legal interest post-default or post-judgment, unless a valid contractual rate survives scrutiny.
Account for Grace Periods under Maceda Law or special Pag-IBIG moratoria (e.g., pandemic relief).
Compute Separately: Contractual interest, penalty, and legal interest during litigation.

12. Practical Take-Aways

The benchmark legal interest is now 6 % p.a. across the board.
Contracting parties may stipulate higher interest, but courts police excessive rates, especially in low-income housing.
A “penalty” label does not immunize a charge; if it functions like interest, the courts will treat it as such.
Always distinguish running contractual interest (for use of money) from penalty interest (for delay) and from legal interest (a judicial add-on).
When advising borrowers or developers, embed rate-reduction clauses (e.g., “capped at the prevailing BSP legal rate”) to future-proof agreements.

13. Annotated Statutory & Case-Law Checklist

Citation	What to Note
Civil Code Arts. 1956, 1959, 2209, 2212, 1226, 1229	Foundation of interest and penalties.
PD 957; DHSUD Circulars & Memos	Sectoral caps and consumer protection.
RA 6552 (Maceda Law)	Grace periods and interest suspension.
RA 9679 & Pag-IBIG Circular Nos. 247-10, 439-17	Default penalty mechanics.
BSP Circular 799-13	6 % legal rate.
Nacar v. Gallery Frames (2013)	Pivot decision; uniform 6 % rule.
Spouses Abellera v. Barrera (2017); Fernandez v. FMB (2016)	Reduction of unconscionable default interest.
Lambert v. Fox (2021)	Legal interest applied where contract silent.

Final Word

While parties enjoy wide latitude to set contractual interest after the Usury Law’s suspension, housing is never “purely private.” The 6 % legal rate, Maceda Law grace periods, and DHSUD oversight ensure that Filipinos’ right to shelter is not undermined by oppressive interest or penalty schemes. Prudent drafting—and early recalibration when borrowers stumble—prevents litigation and keeps roofs over heads.