Financial Literacy for Everyone

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Understanding Mortgages

Buying a home is probably your biggest financial decision, and it helps if you know exactly what a mortgage is. A mortgage has three basic parts: a down payment, monthly payments and fees. We have already discussed the down payment. The monthly payment is the amount needed to pay off the mortgage over the term of the loan, which includes a payment on the principal of the loan as well as interest. The fees are all the costs you have to pay upfront to get the loan.

Keeping in mind those basic concepts, we will look at some types of mortgage plans that are available:

  • Prime Rate – The most common type of mortgage plan in Hong Kong offers a borrowing rate that is linked to the Prime Rate, or Best Rate, offered at a given financial institution. The Prime Rate is adjustable and varies with prevailing interest rates. If the Prime Rate goes up, so will your mortgage rate and monthly payment.
  • HIBOR – Some Hong Kong mortgage plans are based on interest rates that are linked to the Hong Kong Interbank Offered Rate (HIBOR). HIBOR varies on a daily basis and tracks movements in the money markets, so the mortgage rate and monthly payment for HIBOR mortgage plans will fluctuate much more than plans based on the Prime Rate.
  • Deposit-Linked – Some banks offer deposit-linked mortgage plans, which reward borrowers with preferential mortgage rates if they maintain certain deposit levels in their accounts.

To know more about mortgages, please contact the bank directly.