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Remo Notarianni

Potential purchasers need to have full picture of their finances before choosing a package
Ultimately, what really matters most when choosing a mortgage is interest rates, and right now in Hong Kong borrowers are enjoying extremely low rates.
With mortgage rates hovering at just above 3per cent, conventional wisdom says this should be a buyers' market. It is not.
Even as interest rates have been slashed during the course of this year, 'in the past six months, the [property] market has slowed down',  says Sharmaine Lau Yuen-yuen,  chief economic analyst at mReferral,  a Hong Kong-based company that has provided mortgage brokering services since 2000.
At the same time, some major lenders in Hong Kong have raised interest rates recently because of high interbank lending rates.
With the world going into a financial tailspin,  potential homeowners need to have a full understanding of their finances  before making an application [for a loan], Ms Lau advises.
'Does the applicant have bad debts or credit cards [liabilities] and are there other expenses that are likely to loom in future? Such details, and the reasons for buying the property, need to be looked at closely and all eventualities considered before one can know what amount he or she can afford to pay back each month.'
In addition to understanding mortgage needs,  including making a thorough comparison of mortgage plans from a wide range of  banks, she says buyers also need to make sure a real-time property valuation is carried out before submitting a loan application, and that includes obtaining an assessment on mortgage plans that best suit your needs.
'There is a lot of choice for buyers,' Ms Lau says. 'For first time buyers, there is either an immediate payment or stage payment method. Immediate payments include cash rebates, special offers from partner banks.
'The mortgage can be applied for at once with the valuation based on the latest transaction,' she says.
'Stage payments vary for up to  two years and you need to wait  two to three months for the transaction to start. The price may vary from the time of purchase.'
At the same time, some of the big developers in Hong Kong often provide sweeteners  to buyers who are keen on a property in  the primary  market.
These include  cash rebates or a waiver of management fees, and the amount is deducted from the value of the property when calculating the loan amount.
Most mortgage plans fall into a floating rate category, with the most commonly used being determined by the prime interest rate.
'More than  96 per cent of people in Hong Kong use prime plans,' Ms Lau says.  Rates, cash rebates and early repayment penalties remain fundamental considerations when looking  for a suitable plan.
For residential buyers, there is normally an early repayment penalty - which is usually a charge of  up to 2 per cent for those who want to sell their property within three years - but this should not be the case for those looking for a long-term deal.
This early repayment penalty can include returning the cash rebate, and investors are advised to ask for penalty waivers for  greater flexibility.
Cash rebates come in different forms, such as with the stage payment method in which there is a risk that property prices will fluctuate, and the bank, while lending you money based on an evaluation, will include a management fee and might deduct a certain amount for a cash rebate from the property.
But simply comparing rents and mortgage repayments in the present economic climate may be enough to reveal the relative merits in terms of saving money.
'At present the debt-to-income ratio is around 30 per cent,' Ms Lau says.
'If you have HK$10,000, you only pay around HK$3,000 for your mortgage. So the market is healthy in that sense and, in many cases, that means you'd have more in your pocket after paying a mortgage than if you paid rent.'
Some banks may even offer a fixed-rate mortgage, but there may be a catch, such as a minimum loan amount and no cash rebate. If short-term interest rates start to rise quickly, and for a long period, then choosing a fixed-rate mortgage may be a wise option.
However, if the homebuyer feels that rates don't have much room to increase further, locking into a two-year fixed rate with early repayment penalities may not be such a good idea. The reason being that if interest rates start to go down, the borrower will not be able to make an early repayment without incurring a penalty.



Study the options before committing to a mortgage