Private Housing Mortgage Types in Hong Kong: According To Purpose

Private Housing Mortgage Types in Hong Kong: According To Purpose

Buying a private house in Hong Kong would most certainly require you to get to know mortgage types. You want to know and understand your options so you can make a smart decision about the type of home loan that you will borrow. Although the public housing offers affordable home ownership options, the wait list is just too long for some people. This is probably why some residents in Hong Kong have opted to look into private housing options.

But before you go ahead and borrow the money needed to buy your home, it is very important to understand your options. According to the Wall Street Journal, the state of the housing market in Hong Kong is pushing developers and lenders to offer sweet mortgage deals to prospective home buyers. While the deals may seem like a good one, borrowers should be careful. They might find themselves with a negative equity if they choose to accept the sweet deals being offered by the lenders.

5 mortgage types that are categorized according to purpose

Knowledge is your best defence against those who are trying to get you to sign a deal that will cost you more in the long run. To start with, let us identify the private mortgage types in Hong Kong.

First mortgage.

This is specific for first-time home buyers. According to the Hong Kong Monetary Authority, banks are discouraged from giving more than a loan-to-value ratio of 70%. That means if the property is valued at HK$5 million, they will only lend you HK$3.5 million – which is 70%. You need to come up with the HK$1.5 million to pay as a deposit. This is what makes it difficult for other people to buy their first home. Although some banks allow qualified borrowers to get up to 90% LTV mortgage, the borrowers are required to get a Mortgage Insurance Programme.

Second mortgage.

This is an option for borrowers who do not have a deposit to put towards the home purchase. If they need additional funds and would like to use the same property that they are buying with the first mortgage, this is the type of loan they will get. Usually, the developer will help struggling buyers through a second mortgage. The first mortgage will be borrowed the usual way (e.g. 70% LTV) while the second one will be used to pay the 30% deposit. It is very important that you get approval from the first lender before you apply for this. Most of the time, the developer will arrange the second mortgage with a partner financial establishment.

Refinancing.

This type of mortgage is used by those who want to improve their payment terms or the interest rate on their current mortgage. The process involved applying for a new mortgage – usually one with a lower interest rate or more favourable terms (e.g. flexible, shorter or longer, etc). You will go through the whole process of underwriting, credit check, property valuation, etc. You need to spend for this – so make sure you are ready for the expense. But once you have been approved of the refinancing, the new terms should be able to save you money.

New mortgage.

This is the term used when a home owner would like to take advantage of the equity that they already own in their house. Most of the time, this is available for those who no longer owe anything on the original mortgage. It is similar to refinancing, you have to go through the process too – from the credit check to the property valuation. Once the loan is given to you, the equivalent of your home’s equity can be used to finance anything – a business, a new investment, etc.

Bridging Loan.

This type of loan is for home owners who are in the midst of selling a property. Most of the time, those who sell their home with the intention of buying a new one end up in a financial fix especially when the sale takes too long to happen. Usually, the money they will use to buy the new house will come from the old one. If it takes long to sell the latter and the former is already about to close, that could be a problem. A bridging loan becomes the solution to the problem. This is a short-term loan that should be paid at a fixed date – usually when the old unit is sold.

Common mistakes when borrowing a home loan

Knowing the different private housing mortgage types will allow you to borrow based on how you intend to use it. But despite borrowing the right loan, there are times when you are still placed in a financially vulnerable position. Make sure you can avoid the common mistakes borrowers usually make regardless of the mortgage type they choose to loan. Here are the usual mistakes that you might commit.

• Falling into negative equity.

This is when what you owe is higher than the actual value of the house. According to the data from the Hong Kong Monetary Authority, there is a decline in the negative equity cases in Hong Kong. It used to be 1,432 in March but after June, it is now down to 1,307.

• Ignoring the terms and conditions.

This might be tough to read but it is a necessity given the expense that you are making on this purchase. It is too big to ignore. You have to read it and understand what it means. Do not trust the lender – make sure the terms of the loan will back up what they say. If not, you might be signing into something that you are not prepared for.

• Forgetting the costs.

There are many costs to buying a home and it goes beyond what you will pay towards any of the mortgage types. Make sure you know the fees, charges, and duties that have to be paid to complete the mortgage transaction.

• Failing to compare different lenders.

Comparing the best deals is a must. Do not rely on one lender alone. Make sure you do your research so you can get the best interest rate and terms. Do not forget the customer service of the lender. That might be crucial when you encounter problems as you are paying off your mortgage.

It helps to understand how much you need to pay for the mortgage that you will borrow. You can use the mortgage calculator from the HKMC.com to help you estimate your monthly budget once the mortgage payments begin. There are other calculators available on-line. You might want to use the calculator from the website of the lender you want to borrow from. This will make your estimates as near-accurate as possible.