The following case studies show what will become of home loan repayments if Hong Kong's prime lending rate reaches 8 per cent and existing discounts at which mortgages are advanced to prime remain unchanged. However, as banks have already indicated that they plan to scale back those discounts, the real impact on home loan repayments is likely to be even greater than the examples set out below.
Case Study 1:
Standard banking product
A buyer makes a deposit of $750,000 and raises a standard mortgage from a bank of 70 per cent of the value of the property, say, $1.75 million, repayable over 20 years at an interest rate that floats at 2.7 percentage points below prime. As prime is currently 5 per cent, the loan is priced at 2.3 per cent and the current monthly repayment is $9,103.95.
If prime were to go up to 8 per cent by December this year, interest on the loan would rise to 5.3 per cent and the monthly repayment to $11,518.49 - an increase of $2,414.54.
Case Study 2:
HKMC-insured loan