Mortgages

Before applying for a mortgage from a bank, you should understand thoroughly the terms and conditions, including tenor, repayment schedule, monthly repayment amount, interest rate, method of interest calculation, and other related charges. You might consider asking the bank to illustrate how the monthly repayment amount and other charges are calculated with reference to a mock loan amount.

When choosing a mortgage plan, you should carefully assess your affordability. In addition to the down payment and monthly repayment, you should take into account other expenses, such as mortgage administration fees, legal fees, insurance fees, valuation report fees, etc.

Banks decide on the mortgage loan amount based on a number of factors, such as the borrower's repayment ability, and the final approved mortgage loan amount may not be the same as the amount requested by the borrower. Before you pay a deposit on the property, you should take a conservative approach in estimating the amount of mortgage loan you can obtain from a bank so as to avoid having insufficient funding to complete the purchase.

Some non-bank institutions (such as property developers and finance companies) may offer mortgage plans with high loan-to-value (LTV) ratios or other promotion schemes to first-hand property buyers. Potential buyers should fully understand the terms and conditions of such mortgage loans. Even though the mortgage promotion schemes for the initial period may look attractive, the mortgage rate and repayment amount of some of these schemes may increase significantly after the initial years of repayment. Potential buyers should take into account any changes (e.g. change in mortgage interest rate) that may occur throughout the entire loan period and carefully assess their repayment ability so as to make shrewd and prudent decisions.

When choosing a mortgage tenor, you should consider your financial condition and repayment ability. In general, the longer the tenor is, the lower the monthly repayment amount but the higher the total interest expense. On the contrary, the shorter the tenor is, the higher the monthly repayment amount but the lower the total interest expense.

Mortgage interest rates are mostly calculated with reference to Hong Kong Interbank Offered Rate (HIBOR) or Prime rate (P), both of which are floating interest rates. HIBOR fluctuates more, and mortgage interest rate calculated with reference to HIBOR is usually subject to a cap. Prime rate is relatively stable, but the Prime rate offered by each bank can be different. Borrowers should check the effective mortgage interest rates when shopping around for the best value plan.