It is difficult to pinpoint exactly when it started, but somehow “getting married” and “buying a house” has become joined at the hip, about the same time when 8 out of 10 people from the Post-80s generation started to think getting their own place is the ultimate life goal. With property prices in Hong Kong going through the roof, are there any way to save more without having to starving yourself to save up for a down payment? The answer is simple: choose the most suitable mortgage for you! The right mortgage can save you more than just interest expenses, but also help avoid unnecessary risks and manage your finances with ease. But do you know what is “interest period”, “flexible rate”, “HIBOR”, “Prime Rate”, or “deposit-linked mortgage”? What are the differences between the 3 types of mortgages in Hong Kong?
3 Types of Mortgages
When it comes to mortgages, the most important thing is obviously interest rate. Interest rate varies with your income and the type of mortgage. Mortgage plans in Hong Kong can be generally categorized into 3 types: (1) fixed-rate, (2) flexible-rate (HIBOR or Prime Rate), (3) Deposit-linked.
（1）Fixed-rate Mortgage
Fixed rate mortgage plans come with a period of fixed interest rate, which usually lasts for 3-5 years, depending on the specific plan. Within that period, your mortgage interest will remain the same, regardless of the market interest rate. Although fixed rates are slightly higher than flexible rates, the appeal of fixed rate mortgage plans is that you no longer have to worry about the fluctuations in base rates in the near future. It’s much easier to manage your finances with a fixed rate mortgage plan.
（2）Flexible-rate Mortgage
Flexible-rate mortgage plans are based on “HIBOR rate (Hong Kong Interbank Offered Rate)” or “Prime rate”. HIBOR rate changes more often while Prime rate is more predictable and stable.
The Prime rate has held steady since 2008, so your interest expenses is foreseeable. If you prefer greater stability, you should go for the prime plan.
On the contrary, HIBOR changes more often, so as HIBOR-based plans. HIBOR plans are renewed periodically (at 3, 6, or 12 months) during the loan’s tenor, and the interest rate will be kept the same during that specific period. Generally, the longer the interest period, the higher HIBOR will be. As the Fed announced earlier that rates will likely be increase before the end of this year, you could opt for a HIBOR mortgage with a cap to battle the risk of increased mortgage expenses.
（3）Deposit-linked Mortgage
There are mainly two types of deposit-linked mortgage. The first kind is linked to a deposit account that offers a preferential interest rate equivalent to the mortgage’s interest. The other don’t have an equivalent mortgage interest, but your deposits in the account can use to reduce your interest in each repayment period. The interest rate of deposit-linked mortgage is usually HIBOR-based or Prime-based. So if you have extra cash on your hand, deposit-linked mortgage might be the most direct way to lower your interest expenses!
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Buying a house is a life time investment and should be handled with meticulous care. Like any other kind of purchase, the mortgage that suits your friend may not be the right one for you! After reading up on the different types of mortgage plans, it is time to compare them in detail! Visit MoneyHero’s mortgage comparison page, and you can view all mortgage plans in a glance.
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