Guide To Borrowing Mortgages In Hong Kong
Home loans may be a necessity if you really want to be a homeowner in Hong Kong. An article published on CNN.com revealed that Hong Kong is setting a record for having an unaffordable housing market.
Apparently, the median price of a house in this region is 19x more than the annual household income of its residents. This data from the latest survey of Demographia is said to be the highest that the survey has recorded since it started 12 years ago.
With Hong Kong holding the top spot as having the greatest difference between the home price and household income, it is not surprising to know that borrowing money to buy a house is a necessity.
About mortgage loans in Hong Kong
Fortunately, a lot of banks in Hong Kong offer home loans for potential home buyers. In fact, it is easy to compare various mortgage products online. There are websites that will require you to input certain details like the value of the house, the percentage of the value that you plan to borrow and your preferred loan terms (e.g. 25 years).
You can use various tools that will help you compare different loans so you can make a smart decision about the mortgage that will help you buy a house in Hong Kong.
Before you know more about home loans, there are two important agencies that you need to know when you are borrowing a mortgage in Hong Kong.
The Hong Kong Monetary Authority or the HKMA controls the mortgage lending industry. This organization is the one responsible for the risk management of financial institutions offering home loans.
For instance, there is a limit to the loan to value (LTV) ratio of property mortgage – especially if there is evidence that it is a high-risk transaction. The LTV is also different for those who do not have existing mortgages compared to those who have existing mortgage obligations.
The Hong Kong Mortgage Corporation is the one responsible for administering the Mortgage Insurance Program. It is supported by the HKMA. The website of this organization has a list of accredited lenders and a roster of tools that will allow their borrowers to make smart choices about their home loans.
Like all mortgages, you are expected to have a substantial amount of cash to pay the house that you will buy. You cannot borrow 100% of the property’s selling price. Ideally, you are expected to pay 5% of the property’s value when you sign the preliminary sales and purchase agreement.
You need to pay an additional 5% when the formal agreement is being signed. You are also expected to pay more at the closing of the purchase – which is usually 6 weeks after the formal agreement is signed.
It is encouraged that you put as much cash upfront for the house as your deposit. The bigger the deposit, the lower the home loan that you have to borrow. In fact, the highest LTV is 60% to 70% and the property should be HKD 7 million or below. But if it is hard for you to save up enough deposit, there are mortgages that will allow you to borrow up to 90% of the LTV.
Not only that, Gov.hk reveals that resident taxpayers are able to claim deductions on the interest of their home loan. This can be filed under salaries tax and personal assessment. Of course, you need to be eligible before you can file this. This should give you more breathing room in your budget as you pay off the mortgage on your home.
What are the different types of home loans in Hong Kong?
Since a home loan is unavoidable if you want to become a homeowner in Hong Kong, you need to know the different types available. When you understand your options clearly, you can make smart decisions about the type of mortgage you borrow.
Regardless of the type of mortgage, all of them are secured loans. That means the loan is secured by a collateral – which is the house you will buy.
In case you fail to complete your payments, you could lose the house because the mortgage lender will take it as payment for the debt. This collateral is the reason why this type of loan has a low-interest rate compared to other types of loans.
Here are the different types of home loans in Hong Kong:
Deposit-linked mortgage.
This is the most common type of home loan that you can borrow in Hong Kong. This type of loan help borrowers earns a high-interest return when it comes to their deposit accounts. You will place your initial deposit in an account where it has the potential to earn interest.
All your mortgage payments will be deposited in this account. As your mortgage deposits earn interest, you are offsetting the amount of the interest expense of your mortgage – which saves you money in the long run.
General mortgage.
This is a standard mortgage that will allow you to borrow up to 70% of the LTV of the property. The payment terms usually take up to 30 years to complete.
Refinancing.
This is a type of home loan that will allow you to borrow against the equity of your house. That means you will borrow a new loan to help pay off the original mortgage. The benefit of this type of loan is you can change your interest rate into a lower one – if you qualify. You can also take advantage of better payment terms.
All of these loans can be borrowed with two interest rate options:
Fixed interest rate.
This means your mortgage payment will follow the interest rate at the date of your loan application. This will remain the same throughout the home loan period.
Variable interest rate.
This means the interest rate on the mortgage will vary depending on the interest rate in the market. If the index goes down, your mortgage payments will be lower. If it goes up, your payments will increase.
To apply for a mortgage, you will be asked to provide several documents. This will vary depending on the mortgage lender but these are the common documents.
- HKID card (or passport)
- Sales and Purchase Agreement (provisional or formal)
- Salary deposit statements (last 3 months)
- Tax demand note (latest)
- Income proof documents (in absence of the last document)
Consider all the details about home loans in Hong Kong before you finally decide on how you will get the finances that will help you become a homeowner.
Be thorough about your analysis make sure your choice will be conscious of your financial capabilities and situation. A house will be a great asset in your financial life – as long as you can continue paying off the mortgage as stated in the contract.
Recommend0 recommendationsPublished in Hong Kong, Property
