The Best Mortgage In Hong Kong: Which Mortgage Type is Right For You?
If you want to buy a property in Hong Kong, you have to choose the right type of mortgage to help finance this purchase.
According to an article published on the website of the Hong Kong Free Press, properties here are “outrageously expensive.” In fact, the article revealed that paying half of your salary for rent is the norm in the city.
Imagine how much of your budget is being eaten by your housing needs? While buying a house may seem like a huge financial endeavour, it is one that will benefit you in the long run.
Being a homeowner is not an easy feat. There are so many responsibilities and payments to make, and the mortgage that you have to borrow can be very expensive. But you need to view this from a different angle.
If you continue to rent, a huge chunk of your income will only make your landlord or landlady rich. However, if you buy your own home, even if it is financed by a home loan, every payment you make will be credited towards the equity of your home.
Once you completely pay off the mortgage, you will own 100% of the equity of your house. If the value of the property is HK$12 million, then you are worth that much – and probably more!
Home-ownership is something that can validate your financial maturity. However, there is one thing that can compromise your finances – the type of mortgage that you will borrow. If you choose the wrong one, you might not be able to meet the payments. That could eventually make you lose your home.
Home loan types in Hong Kong
There are three different home loans that you can borrow in Hong Kong.
- First is the deposit-linked mortgage that will allow you to earn a high-interest return or offset the interest on your mortgage payments with the interest of the deposit account. Some banks will offer a preferential interest rate that is usually the same as your mortgage. The rate of these accounts will be based on either the Prime Rate or the HIBOR Rate (Hong Kong Interbank Offered Rate).
- The second type of mortgage is a general mortgage that will let you borrow as much as 70% to 90% of the LTV. This home loan does not have to be linked to a deposit account.
- Finally, you have refinancing that is a new loan with new terms and possibly, a lower interest rate in exchange for the existing loan terms of your old mortgage.
Any of these home loan types are great options – but you need to be certain which one will serve your home buying purpose. You want to make sure you will apply for the right mortgage that will give you the best terms and rate.
Questions to help you identify the right mortgage to borrow
Before you can choose which of these loan types you will borrow, you need to ask yourself a couple of questions. Failing to analyse your financial position and your home buying goals could lead you to borrow the wrong type of mortgage. That could end up making your monthly mortgage payments harder to meet.
Here are the important questions that you need to ask yourself:
What is the purpose of the mortgage?
There are four different ways you can use a mortgage.
- Buy a property that you will live in. This is the primary reason for homeowners purchase a property in Hong Kong.
- Buy a property to invest in. This refers to a borrower who intends purchase a property so they can earn from in through rental income.
- Refinance an existing mortgage. This is when you want to borrow a new loan to enjoy better terms and a lower interest rate.
- Benefit from the home equity. Sometimes, people refinance their old mortgage so they can cash out the equity they have built in their home.
Once you know how you will use the mortgage, it should help you narrow your options.
What type of property will you buy?
If you will purchase a private property, you can avail of the traditional home loans. However, if you want to buy a government property, you can avail of the Home Ownership Scheme or the Tenant Purchase Scheme that is offered by the government.
What interest rate do you prefer?
There are two types of interest in home loans, the fixed rate and the variable rate. The fixed rate refers to a type of mortgage that follows the interest rate when you borrowed your home loan.
You get to have the same payment each month. The variable interest rate, on the other hand, follows the interest rate based on the market index. In Hong Kong, it usually follows either the Prime rate or the HIBOR Rate.
Of the two, it is the latter that is more likely to change. If the benchmark goes up, your monthly payment will rise as well. If the rate goes down, it will go down as well.
How much deposit do you have?
The final question that you need to ask yourself is the amount of deposit that you have. According to an article published on MoneyHero.com, the loan-to-value or LTV limit in Hong Kong is currently at 60%.
That means you should have at least 40% saved up for the down payment. With this deposit, you have the freedom to choose what type of mortgage you will borrow. In case your deposit cannot meet this amount, you can still get a home loan.
However, you have to borrow through the Mortgage Insurance Programme of the Hong Kong Mortgage Corporation. Either that or you can apply for a second mortgage that will only cover the deposit of the house that you will buy.
Once you answer these questions truthfully, you should be able to choose the right type of mortgage that you can financially commit to. Just remember that your home buying expenses will not be limited to the home loan. You still have a lot of expenses to meet – the stamp duty, real estate agent fees, etc. Make sure you are financially ready for all these costs before you proceed to buy a house.
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