There is no "stress test," and the earnings requirement is low in the application, while the interest rate is higher.
Today, the Hong Kong Mortgage Corporation Limited (HKMC) starts to collect the application for the "Fixed-rate Mortgage Test Program" (hereinafter referred to as the "Fixed-rate Mortgage"), the interest rate of which is higher than the current floating mortgage rate. However, a spokesman of HKMC emphasizes that borrowers of the "Fixed-rate Mortgage" can choose a 30-year repayment period, but must renew the floating interest rate mortgage base on the Prime Rate Mortgage (hereinafter referred as the P Mortgage) after the first 10-20 years of the fixed-rate grace period. The interest rate is temporarily set to P-2.35%, and the actual rate is about 2.9% taking the current P as 5.25%. Since no stress test is required, the borrower's monthly income requirement will be lower than that of the existing floating rate mortgage. And the "Fixed-rate Mortgage" can also save money compared with the "Breath Plan," which is a high percentage of mortgages by developers.
Journalist(Leong Yuet Kam)
The spokesman expresses that the "Fixed-rate Mortgage" has fixed interest periods of 10 years, 15 years, and 20 years. The borrower can choose a 30-year repayment period, and the monthly repayment amount is calculated at the fixed interest rate. Borrowers can choose to renew by the fixed-rate at that time or a floating-rate for the remaining repayment period after the fixed interest period. The mortgage should base on Prime Rate if they choose a floating-rate, with the interest rate in P-2.35%.
It can be renewed until 30 years, and the interest rate will be changed into a floating rate after the expiry date.
Borrowers do not need to past the stress test since the "Fixed-rate Mortgage" will not be affected by interest rate fluctuations during the fixed interest period, which will up to ten years or more. However, borrowers' mortgage to income ratio still needs less than 50%. Compared with the floating-rate mortgage plan, the borrowers' monthly income requirement is lower under the "Fixed-rate Mortgage," and their budget will be more abundant. Also, borrowers can apply for mortgage insurance at the same time.
20% interest expense will be saved in ten years if customers change the "Breath Plan" into the "Fixed-rate Mortgage."
According to the latest announcement from the Mortgage Corporation, the annual interest rates of the "Fixed-rate Mortgage" for 10-year, 15-year, and 20-year are 2.55%, 2.65%, and 2.75%, respectively. Assuming that the customer has bought a residential property for HKD10 million and has paid 20% of the property price for the first installment when purchasing the property. Because the monthly salary requirement was not eligible at that time, the customer chose the "Breath Plan" provided by the developer, with 5-year of interest only. There will be two years to expire after 3-year repayment. The monthly salary of the customer is about HKD70,000, and the plan is to borrow 80%. That is, the loan amount is HKD8 million in 30 years.
Should the customer apply for the "Fixed-rate Mortgage" immediately, or wait two years for the expiry of the "Breath Plan" before changing to the floating rate mortgage plan on the market?
Due to the short term of the "Breath Plan" loan provided by the developer, the interest rate is generally higher, and some may up to 5%. In contrast, the 10-year to 20-year interest rates of the "Fixed-rate Mortgage" are 2.55-2.75%, which are more attractive. Taking the above case as an example, the total interest expenses for the 10-year and 20-year fixed-interest periods are about HKD1.795 million and HKD3.26 million, respectively. In comparison, the total interest expense for the 10-year and 20-year "Breath Plan" or other floating-rate mortgages in the next two years are HKD2.232 million and HKD3.47 million. Thus, immediate application for the "Fixed-rate Mortgage" will save total interest expenses by 20% and 6%, respectively.
The monthly salary requirement in "Fixed-rate Mortgage" is lower, with a lower limit to HKD63636.
Borrowers do not need to pass the stress test, and their salary requirements under the "Fixed-rate Mortgage" in 10-year or 20-year are HKD63,636 and HKD65,319, respectively. Under the same payment amount and term conditions, borrowers' salary requirement under the "Breath Plan" and other floating-rate mortgages in the following two years is up to HKD77,862. The previous plans are 18% and 16% lower. In other words, the monthly salary requirement is lower than that in the "Breath Plan."
Cho Tak-Ming, the Chief Vice President of mReferral Mortgage Brokerage Services, expresses that customers can apply to the bank for a mortgage plan with a mixed fixed rate and floating rate or a fixed rate for up to 30 years. That is, customers can continue to use the fixed-rate mortgage or renew it by floating rate after the expiry of the "Fixed-rate Mortgage." So there is no risk that the monthly repayment will significantly increase due to the shortening of the repaying period. The "Fixed-rate Mortgage" is suitable in mortgages for the first-hand properties, exempts from traditional stress tests, and provides one more mortgage option for buyers, including the buyers of pre-sale properties.
There are currently seven banks accepting applications for the "Fixed-rate Mortgage," including BOC, Standard Charted Bank, Bank of East Asia, etc. The application period is until the end of October.
