Property on 90% mortgage

[7jai]

Congrats on your purchase! A ballsy move to buy now when so many people are selling/getting out of HK and there is a lot of pessimism around. But thats exactly why its probably a smart move, low transaction volume now and some good deals around for the few willing to take the risk. Most people won't realise until it's too late, in a few months will be back to normal and most people complaining they missed the boat.

But I hope you have factored in some interest rate rises in the coming months. These are pretty much guaranteed, and will increase your mortgage repayments, unless you selected a FARM (fixed rate) mortgage.

Thanks very much for your wishes! Well for me I will be around for quite a while (my wife's family is here and her career is based in HK, so a bit tough to leave). So I figured why not if I could afford something. And I totally resonate with what you said about 'missing the boat'. There were only a few times in the last few decades where buying a property in HK would have built up significant wealth for that person. I remember a few friends and family were all pulling their hair out missing the boat (usually the dips last for very short periods of time). Once it's gone, it's gone - and you have to wait for the next dip which takes quite a while (based on history).

I was thinking about doing a fixed rate mortgage, but I opted for HIBOR knowing that there will be some interest rate increases in the coming months/year. I was betting that the inflation situation would resolve itself in the near/mid future once the COVID pandemic settles, supply chains improve, and of course I pray for the UKR war to stop (more for the sake of humanity). Although I'm no economics major, I think this is more of a supply-led inflation (i.e. demand hasn't changed, it's the lack of supply that's causing prices to rise). Once supply fixes itself, I feel that with the sudden jolt of increasing interest rates, mixed with low demand for goods & services, it will then tilt the scale the other way and interest rates will suddenly drop again.

At least this is my thoughts on the situation. But who knows, it's anyone's guess and gamble. Here's hoping they dont increase the interest rates too crazy.

[jw721]

Firstly, on a 90% mortgage over 30 years, you will have to pay 4.35% in mortgage insurance. If you can get it down to 85% mortgage, it drops to only 3.05%, or 80% mortgage drops to 2.15%. So you might want to consider only 85% or 80% to save a fair bit in MIP costs.

Secondly, you can choose to pay the MIP one time or every year. My example above is one time payment. So the 4.35% fee gets added to the mortgage and then spread over the 30 year term of the mortgage. So its a one time fee, but you are not paying it at once upfront. Just a little bit every month for 30 years.

If you choose to pay annually instead of one time, then instead of a 4.35% fee, it changes to 2.03% for the first year, and then 0.77% for every year after this. So basically after 4 years, you are paying about the same as the first upfront option.

So its a bit of a gamble. Pay a one time 4.35% fee, or pay annually and hope that in less than 4 years you can get the LTV ratio of your property under 60%. This can be done in two ways, firstly if you pay back shit loads off your mortgage in the first 4 years, or secondly if HK property prices surge over the next 4 years. But also prices could drop, making it even harder for you to get the LTV below 60%, it might take you 10 years to achieve this and then you end up paying 8.96% in MIP fees over 10 years. So I think most people choose the one time fee for stability and less stress.

So back to your original question, if you choose the one time 4.35% fee, its already baked into your mortgage. So sure you can refinance after 3 years, maybe get some cash back or lower rate for refinancing, but the original 4.35% fee you paid for the MIP is baked in and you can't save anything on this when you refinance. But if you choose the annual MIP fee, then is a bit of uncertainty, you might be able to refinance and come out on top in terms of MIP costs, but I think its bloody hard to get 90% down to 60% in less than 4 years.

https://www.hkmc.com.hk/files/produc...0Sheet_Eng.pdf

Hi bdw,

I know this is an old thread, but just came across while I was searching for remortgage. Thought you might be able to advise.

Say if I remortgage current 90% loan with another bank to get cash rebate (while reducing loan to say 70% LTV), I presume I still need the MIP.

If I already chose to pay one time MIP fee at the current bank, do I need to pay for MIP again for the remortgage? And what happens to the one time MIP fee? Do I need to keep paying them on installment even after the remortgage or pay lump sum of the fee when I transfer my mortgage?

[ndt]

Hi bdw,

I know this is an old thread, but just came across while I was searching for remortgage. Thought you might be able to advise.

Say if I remortgage current 90% loan with another bank to get cash rebate (while reducing loan to say 70% LTV), I presume I still need the MIP.

If I already chose to pay one time MIP fee at the current bank, do I need to pay for MIP again for the remortgage? And what happens to the one time MIP fee? Do I need to keep paying them on installment even after the remortgage or pay lump sum of the fee when I transfer my mortgage?

Below are examples of special premium concession applicable to first-time homebuyers –

Example 1: A homebuyer intends to purchase a property valued HK$15 million and applies for a mortgage loan with 70% LTV ratio. According to the regulatory measures, the maximum LTV ratio of the loan to be originated by a bank is 70%. As the MIP will waive the premium on insurance coverage for the mortgage loan portion not more than 5% above the maximum LTV ratio for banks (70% in this case), the bank may offer a mortgage loan with 75% LTV ratio in practice and the homebuyer needs not pay any premium.

https://www.hkma.gov.hk/eng/news-and...07/20230707-5/

[bdw]

Hi bdw,

I know this is an old thread, but just came across while I was searching for remortgage. Thought you might be able to advise.

Say if I remortgage current 90% loan with another bank to get cash rebate (while reducing loan to say 70% LTV), I presume I still need the MIP.

If I already chose to pay one time MIP fee at the current bank, do I need to pay for MIP again for the remortgage? And what happens to the one time MIP fee? Do I need to keep paying them on installment even after the remortgage or pay lump sum of the fee when I transfer my mortgage?

If your original mortgage 2 years ago was 90% LTV, then you had to pay the MIP insurance. Now 2 years later, if you have repaid enough of the mortgage, or property value has increased, so that current outstanding amount is only 70% or less of property value, then when you refinance you wont have to pay the MIP again. The only difficulty is will need a solicitor to do the refinance, since it becomes a bit more complicated like a "new loan" rather than just "refinance". But the solicitors fees should be under $10k, the cashback around $150k, so anyway still well worth it to refinance.

On the other hand, if current outstanding amount is still high LTV%, then when refinance you would have to take MIP again. This sounds like a pain in the arse to me, I would probably wait and not refinance until LTV ratio was below the % required for mandatory MIP.

[D.YU]

Now 2 years later, if you have repaid enough of the mortgage, or property value has increased,

Side tracked: ask anyone in this city if their property bought 2 YEARS AGO has increased in value. LOL