Best type of mortgage

Hi All,


Having signed our lives away for our new white elepha...errr... flat, it's now time to actually pay for it. Next step is the REAL fun... finding a mortgage.


The good news is that the banks have recently changed their tunes and are ready to rumble, so seems we are spoiled for choice. The bad news is that there are too many choices. Right now I am on the fence between HIBOR-based or a fixed rate loan.


I also did some scenarios using some of those savings-linked mortgages but I think there are better uses for the cash on which they rely (unless you have a lot of cash in which case just pay off the damned note). Some also have rebates but we are not swayed by that... easy to be penny wise and pound foolish chasing them.


Best HIBOR I can find is H+.7% which is now just about 1% w/ a cap of P-1.5. Terrific for short-term but I think lending rates only have one way to go in the future, so it may not be the safest bet. I have heard of old H+.5% still in effect but I guess that won't fly with rates so low now. Still I have to only see it as an extra fifth point of margins for the bank, not the super low 1-ish% which they tout.


Again fixed look really good provided rates don't go down some more. The question is how long to lock in for because if rates move against us we will be stuck, but still looks like a one-way bet overall.


Conventional seems least appealing now as in the past I have seen P-3 or 3.5. Best I see now is P-2.5 and if a better deal comes back later we can always refinance right? The one thing there that messes me up is that each bank has it's "own" prime rate. Is it better to start off w/ like an HSBC or Hang Seng who already have the lowest? Or best to just take the best deal staring you in the face? Viva La HK...


That's my thought process so far. Appreciate any insight from those who have been there and done that.

Hi,


I got a mortgage broker to do all the work and recommend what mortgage to take.


When I got a mortgage, "fixed" only meant "fixed" for a couple of years. So if you got a fixed loan, how long would you keep it at that rate for?


Seems like the rates you've been quoted are pretty low. If you get a fixed loan, at least you can budget for how much you'll spend on the flat for your repayments.


Mine is not a fixed mortgage but I find it's been okay weathering the changing rates as HK's rates are quite low.

Slammy... in HK "fixed" means a period of 1-3 years currently. Each year longer increases the rate. The gamble of course is that if rates stay low you might do best to do a year at a time.


Walkup... agree in theory on the timeline but on the direction, they have only one way to go. Any comment on the relationship between P- and H+? I guess they both should generally move together so what is the catch of HIBOR-based?

The best type of mortgage is one that best fits your unique situation. Your situation goes beyond the pure financial considerations to include you risk tolerance or aversion and the overall stability of your situation. Here are some thoughts to consider.


1) A variable rate mortgage will always be the most cost efficient. The difficulty is that over time interest rates may fluctuate through a wide range and affordability may become huge issue at the top end of that range. With Murphey’s law in play this will always occur at the worst possible time. The small amount of interest saved over a series of shorter term mortgages or even a five year term may not be worth the headache. Most importantly if you are in a variable rate mortgage you need to review the situation on a regular basis rather than getting into a comfortable rut of just paying the bill.


2) A fixed term mortgage of longer duration gives you the peace of mind of knowing what your costs will be but may limit your flexibility or cost you penalties if you decide to upgrade or need to renegotiate your mortgage. If at some point the rates go to the moon and you are locked in at these low rates however , you will indeed be sitting pretty.


3) It is nearly impossible to foresee the future. That said with interest rates at near historic lows it is unlikely that you will find a better rate at a future date. Not impossible, mind you only unlikely.


4) Don’t discount the improbable possibilities of job loss, illnesses, accidents, divorce and other unpleasant financial shocks. Ask yourself the question if the worst happens what kind of support can I count on from my banks. If you are realistic you won’t like the answer. You don’t want to be asking for new credit if these things occur.


Probability is that the best move is to figure out how likely you are to want to make a move over the next five years or so. Then select a term which best suits those probabilities. Don’t forget that housing will be the biggest commitment in your financial equation. Stability in this key area will make all of your other financial decisions and affairs easier to manage.


Ultimately though pages of platitudes could be generated on this topic, it comes down to your best guess about where rates are going and your real and emotional tolerance for uncertainty. Looking for someone to tell you what is best. Look in the mirror.


Mortgage Man

Asia Pacific Group

email : info@apg-hk.com

Generally an excellent post by investmentadvisors/Mortgage Man - with one exception: "A variable rate mortgage will always be the most cost efficient" is not correct. It should be "A variable rate mortgage will always be the most EXPECTED cost efficient."

I just bought my first home a couple of months ago - I went round to 6 banks. Here's my advice from a lay person's experience and opinion (1 = best, 6 = worst):


1. Standard Chartered - excellent, professional, efficient service from beginning til end (important as it was my first time!), I went with the HIBOR floating rate, it was the best interest rate I could find


2. Hang Seng - feels like the "people's" bank, not primier level service but had room to be flexible with amount they were willing to loan (even if the actual amount was off from the percentage they valued the property at). Average interest rate, comparable to HSBC


3. HSBC - I got mixed service levels, one lady seemed very professional but another one was not. The latter didn't listen to my needs at all (although this is probably specific to her, not to the bank overall). As mentioned above, interest rate average comparable to Hang Seng (but not really flexible to lower it)


4. DBS - my experience was the staff didn't really know what they were doing. Not efficient and had to go through a lot of back and forth because they had to ask other departments about questions I had


5. Bank of East Asia - service was fine, but the interest rate was not the lowest and was not flexible at all


6. Citibank - Rude and did not even seem the least bit interested in getting the business!!!

I have both H+ and P- mortgages. At present H+ is better and at 1%, interest component of monthly repayment is less than 1/4 of principal component so most of my money is going to pay off the flat. I have to take a view on the next 2-3 years to decide if I would be better off locking in to fixed rate and my view is that rates will stay low for a while so I don't. 2 years ago though when the rate was 4.5% my interest component was roughly double my principal component, a big difference from today....

Nicnic, what makes you think interest rates are going to stay low for a while ?

because there are not many countries around the world trying to encourage saving. throughout the life of a 20 year mortgage there will be plenty of ups and downs in interest rates and to me the decision to lock in a higher fixed rate for 2-3 years is quite short term anyway. I can still get hurt by rising interest rates in 3 years...

Mortgage link or conventional mortgage will be better? Conventional wants to give me $6000 for cash. Mortgage link said i can save interest but i have to maintain $10000 in my account. Please advice.

Is Ted still Angry ?