Wanting to learn more about mortgages in Hong Kong?
If you are planning to own your own home in Hong Kong, it’s unlikely that you’ll be able to do it without a house mortgage.
Hong Kong has one the most unaffordable housing market in the world, with the median home price now equal to approximately 21 times the median annual household income of its residents. With such a massive difference between home prices and household income, one has to depend on mortgages in Hong Kong for buying a house.
In short, home mortgages are a necessity in the country.
If you are looking to learn more about mortgages in Hong Kong, we’ve got you covered. If you’re buying an apartment, we have tips on securing home mortgages. Or if you already own an apartment and are looking to refinance, we also have tips.
This article will tell you everything you’ll need to know about mortgages in Hong Kong.
1. Initial Down Payment
If you are purchasing a property in Hong Kong, you will need a large down payment. The government has strict rules about how much money people can borrow when they’re buying a property in Hong Kong. This is one of the ways the Hong Kong government can help to regulate housing prices.
Your maximum loan size will depend on two major factors: whether you are buying a property for self-use, and whether the majority of your income is derived in Hong Kong.
Generally, for properties priced at below HK$10ml, a 60% loan with a maximum of HK$5m may be given. For properties priced at HK$10ml or more, you will only be able to borrow up to 50% the value of the property.
The government sometimes changes the rules regarding LTVs (loan-to-value ratios). For the most up-to-date information, check the HKMA website.
You will also need to consider stamp duty and the real estate commission.
2. Use a Mortgage Broker
Mortgage brokers are in an excellent position to advise you about everything you need to know about mortgages in Hong Kong.
Brokers should be familiar with lending terms across all the different banks in Hong Kong. They can advise you as to which banks are currently offering the lowest interest rates, as well as inform you about a whole host of other information such as which banks are most likely to process mortgages faster.
You can expect the mortgage broker to do almost all the liaising between you and any of the banks. Note, a bank will directly pay the mortgage broker a commission; thus, your mortgage terms won’t be impacted by using a broker.
Savvy in HK tip: We’ve worked with Albert Fung on more than one occasion and was extremely impressed with how committed he was in helping to secure a mortgage— if you’re looking for an experienced mortgage broker, he’s your man.
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3. Mortgage Calculator
As we all know, homes in Hong Kong aren’t cheap. One of the first things you need to do is to do some quick calculations on a mortgage calculator and see if the numbers make sense.
Check out the simple mortgage calculator on HSBC, and you’ll quickly be able to estimate total repayment, monthly repayments, maximum loan amount, and total interest payable. Alternatively, check out the Hang Seng mortgage calculator.
4. Bank Valuations
When it comes to buying an apartment in Hong Kong, it’s possible you will have realtors tell you that a particular apartment is being offered at “below bank valuation” and therefore a great buy.
You might have wondered what this means and how you can actually check if you’re being told the truth.
Firstly, let’s talk about how you can do your own research on property valuations. While all banks will value properties differently, a simple way to get a rough guess of the value of a particular property is to check out the HSBC valuation tool.
This is a great tool, in seconds you will be provided with HSBC’s latest valuation on any property in Hong Kong.
Now, let’s talk about why bank valuations are important. Lenders need to understand how much a property is worth so that can make sure they are not lending you too much money.
In Hong Kong, banks have to follow strict guidelines from the HKMA in terms of how much money they can lend you. These guidelines are set up in terms of maximum LTVs (Loan to value).
The V in “LTV” will be the bank’s internal valuation and not necessarily the price you pay, so knowing how a bank is valuing a particular property, will help you to understand how much money you can potentially borrow.
5. Cash Rebates
Cash rebates related to mortgages in Hong Kong are a joy. Many banks will provide you with a cash rebate upon a successful mortgage application. The cash rebates vary, but you can generally expect to receive between 0.5-1.5% of your overall mortgage in cash from your lending bank.
So, if you borrow HK$10ml, approximately two months after you take out the loan, you may be able to receive HK$50,000-$150,000 in your account.
Note, the exact amount will depend on the precise terms of your loan. Keep in mind; the lending bank will be able to provide you with the complete details of possible cash rebates when you are applying for a loan.
6. Apply for Mortgages with Multiple Banks
Each bank has different rules and procedures when evaluating mortgage applications. If you are experiencing difficulties obtaining a mortgage from one particular bank, try approaching other banks.
For example, one bank might count overseas income (i.e., non-Hong Kong income) as zero. In contrast, another bank might allow foreign income to be included in their assessment of your income.
A good mortgage broker should be familiar with every bank’s mortgage rules and should be able to save you a lot of time by pointing you towards the best bank for your situation.
7. Periodically Check Rates
Stay abreast of changes in interest rates. This will help you to potentially spot an opportunity to refinance your existing mortgage at a lower rate.
While banks will generally advertise their mortgage rates on their websites, Property.hk provides up-to-date mortgage information across all the banks. From interest rates, cash rebates, and prepayment penalty periods, they also offer news, property listings, and tips to help you with your homeownership journey.
8. Prepayment Penalty Periods
Your bank will likely penalize you if you repay your mortgage within the first 2-3 years of the mortgage life. This penalty is known as an “early-repayment” penalty.
This penalty will apply regardless if you sell your apartment or whether you move and refinance your loan to another bank. Costs will vary according to your individual case.
Early repayment penalties are significant and could cost you up to 2% of the total repayment amount.
9. Banks may Match their Competitors’ Rates
If the prepayment penalty period for your current mortgage has ended and a different bank is offering lower mortgage rates, flag this to your current bank to argue for a better rate.
Chances are, your current bank will match the lower rate, which means more savings for you!
And staying with your existing bank, should, of course, save you a whole lot of headaches related to filling out forms and proving a whole bunch of information to a new bank.
10. How to get a mortgage in Hong Kong?
In order to get easy mortgages in Hong Kong, you will need to submit the following documents. Though the documents depend on the mortgage lender, these are the common ones that will be required:
- Passport or an HKID card
- Either provisional or formal sales and purchase agreement
- Salary deposit statements of last 3 months
- The latest tax demand note
- In the absence of a tax demand note, income proof documents must be submitted
11. Common mortgage mistakes
So if you are considering buying a home in Hong Kong, here are some things to avoid before applying for a mortgage, HK. You should be aware of these common mortgage mistakes:
- Regular Stamp duty: Don’t forget that you will need to pay stamp duty (i.e. pay money to the government) on top of the purchase price. The exact amount of stamp duty will be calculated according to the purchase price. The maximum stamp duty is 4.25% of the sales price.
- Special stamp duty: This is a duty you will need to pay if you sell your home within 36 months of buying it.
- Buyer’s stamp duty: This is an extra cost non-permanent-resident buyers will have to pay when buying a home in Hong Kong. It’s a flat rate of 15% of the purchase price. A very substantial cost.
- Ignoring homeownership costs: It is not just the house mortgage that your home involves. There are other expenses like quarterly government rates, insurance, repairs, and monthly management fees. So do not stretch overstretch yourself by having a monthly mortgage amount that is too high and might become difficult to manage.
- Choosing to refinance at the wrong time: No matter how low the house mortgage rates are, it doesn’t mean it is the right time for you to refinance. There are many factors that need to be looked into like your credit score, savings, your stake in the house, the difference in interest rates.
- Carrying two mortgages at a time: Don’t commit to buying a new home until you have sold your old one. Committing this mistake will create incredible financial pressure.
- No future planning: Before buying a home in Hong Kong, it’s a good idea to have a good financial plan in place so that you can meet your financial obligations. Consider going to see a financial planner ahead of purchasing a new home.
- Not monitoring the credit: Make sure your credit report is accurate. A bad credit report will result in bad loan deals. So credit monitoring is important.
- Forgetting to add the real estate agents fee: Both buyers and sellers of a property can expect to pay a realtor’s fee. This fee is generally around 1% of the purchase price but can be negotiated.
You can expect to find some pretty big difference amongst the banks in Hong Kong when it comes to securing mortgages. Go armed with knowledge so that you can secure the best possible mortgage.
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