Introduction

Having decided where you want to live and which house to buy, the next stage of buying a property is finding the money to pay for it. For anyone except the very rich, this will involve taking out a mortgage.

Hong Kong mortgages are tightly controlled and are granted based on the borrower’s ability to repay, though the control has loosened a little of late. It is worth shopping around for a good deal on a mortgage, as lenders will be quite competitive to get your business. This is especially true for the smaller banks, which may offer you incentives to take a mortgage out with them.

Things to consider

– The lowest interest rate mortgage is not always the best deal: Unfortunately, interest rate alone cannot be relied on to make the best mortgage financial decision. Mortgage rates can be artificially reduced by adding upfront discount points or adjustable rate features that may not make good financial sense in context of your situation.

– Beware of low payments: Mortgage payments are important in terms of affordability, but relying on payment alone to select the best loan can lead to disastrous consequences. Monthly payment can be manipulated to enhance affordability by extending the term, adding up-front closing costs or adding adjustable rate features, all of which can negatively impact your wealth.

– Time matters: You can avoid costly mistakes by asking yourself a simple question—how long do I expect to live in this property? Time matters because mortgage interest rates are intimately tied to time. Longer-term fixed-rate loans have higher interest rates. Shorter-term fixed-rate loans have lower interest rates. If you purchased a 30-year fixed loan when you only planned on owning a property for 5 years, you paid too much for your mortgage.

– Financing closing costs can hurt you in the long run: Lenders will from time to time dismiss up-front costs of a mortgage by adding those costs to the loan amount. If you are financing closing costs, you are paying for the closing costs with the equity in your property. And because of interest charges, you can expect to pay double or triple the initial cost of the closing costs over the life of the loan.

Summary

If you are looking to purchase a property in say the UK or Australia, the rules are different for expats acquiring a mortgage than a person resident in that country with income sourced in that country. It is likely to be slightly more expensive to acquire the mortgage as the bank views this as slightly riskier business, regardless of the individual’s financial position. In Hong Kong it is certainly worth speaking with a Broker who can help wade through the plethora of different providers, products and costs in the market place.

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