HIBOR residential mortgage loans at lower interest rates are on the rise.
In view of the rising popularity of this type of home purchase finance, the Consumer Council has surveyed the market and examined what downsides, if any, consumers should be aware of.
In the survey, the Council has collected from 11 banks in mid-April information about HIBOR (Hong Kong Interbank Offered Rate) Residential Mortgage Loan. HIBOR is the rate of interest offered on HKD loans by banks in the interbank market for a specified period ranging from overnight to one year.
In a HIBOR mortgage plan, the interest rate is calculated on HIBOR basis plus a certain basis point, e.g. assuming the 1-month HIBOR is 0.18% and the basis point 1.5% then the mortgage interest rate would be: 0.18%+1.5% = 1.68%.
HIBOR plans are believed to have found increasing favour with would-be home mortgage consumers as the current low levels in HIBOR continue in the market.
But, unlike home mortgage loans based on the Prime Rate (P), HIBOR mortgage plans are relatively more volatile due to a host of factors such as the economic cycle and capital flow, etc.
Therefore, it is difficult to predict with accuracy the long-term trend of HIBOR for estimating mortgage loan repayment.
To protect against interest rate risk, banks offer mortgage interest rate cap calculated with reference to the Prime Rate (currently at 5% and 5.25% depending on banks).
In the survey, it was found that the current interest rate cap on offer varied between 3% and 5.25%.
Consumers contemplating HIBOR home mortgage loans are urged to consider the volatility and long-term trend of HIBOR. Equally important, they should also consider their own financial conditions in meeting repayments over a prolonged period of time.
Furthermore, take note of the choice in the different duration periods of HIBOR, and the terms and conditions of different HIBOR mortgage plans. Shop in 2 to 3 banks before applying.
For example, there is the requirement of minimum loan size for HIBOR mortgage, varying from $800,000 to HK$2 million.
Fees and charges are levied for early redemption of loan (either full or partial prepayment), and late payment.
Customers are allowed to switch from a HIBOR plan to a Prime Rate based plan; banks would consider such request on a case by case basis but the administration fee is usually above $1,000.
Mortgagors are also advised to have sufficient cash on standby as the eventual mortgage loan amount is based either on purchase price or appraisal value of the property whichever is the lower.
In case the latter value falls short of the former value, mortgagors have to be able to put in the difference in balance.
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