Concrete Analysis | Which mortgage rate will be a lifesaver for Hong Kong homeowners?
- Hong Kong Mortgage Corporation has introduced a pilot scheme for fixed-rate mortgages for 10, 15 and 20 years
- Observers say the new fixed-rate plan is more expensive than the Hibor-linked plan
The Hong Kong Mortgage Corporation (HKMC) has recently introduced a pilot scheme for fixed-rate mortgages for 10, 15 and 20 years, with rates fixed at 2.55 per cent, 2.65 per cent and 2.75 per cent, respectively.
The maximum loan amount caps at HK$10 million (US$1.3 million). At the end of the fixed-rate period, the borrower may either re-fix the mortgage rate under the scheme, or convert to a floating-rate loan, which is equivalent to the prime rate minus 2.3 per cent. With the current prime rate at 5.25 per cent, the effective interest rate after the fixed-rate period would stand at 2.9 per cent.
Market observers criticise this and say that the new fixed-rate plan is more expensive than the Hong Kong Interbank Offered Rate (Hibor) linked plan, which renders the former unattractive. On the surface, this view has grounds.
As the Hibor rate now enters a downward cycle, H-plan currently hovers around 2 per cent and a drop is expected in the future. This is indeed much lower than the fixed rates of 2.55 per cent to 2.75 per cent advertised by HKMC.
To put things in perspective, for the average HK$4 million mortgage loan, choosing the H-plan will save between HK$1,124 and HK$1,545 monthly on repayments compared with the 10-year or 20-year fixed contract.
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However, what if the Hibor rises subsequently? The H-plan rate actually includes a clause. If a borrowers’ repayments are greater than they would be on a prime rate-linked mortgage, they will be automatically switched to the prime-based payment scheme of P minus 2.75 per cent. That is equivalent to 2.5 per cent currently, still below the 2.55 per cent to 2.75 per cent of the fixed-rate plan.
