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Mortgage

Basics for HIBOR-Based Mortgage Plan

2022.04.09

In the past few years, most of the borrowers have chosen the HIBOR-Based Mortgage Plan (H Plan) when they were buying new flats in Hong Kong. The mortgage interest rate uses The Hong Kong Interbank Offered Rate (HIBOR) as its calculation basis. Most of the mortgage rate of the HIBOR-Based Mortgage Plan is usually calculated by 1-month HIBOR plus a certain percentage point. The borrower can enjoy a lower mortgage interest rate than a Prime-based mortgage plan in the low interest rate environment.

 

Features of HIBOR-Based Mortgage Plan

The HIBOR-Based Mortgage Plan can be used for the primary and secondary property market, refinancing and cash-out refinancing. The loan amount can be up to 90% of the purchase price of the property. If the Loan-to-Value (LTV) ratio is over 60%, it is required to apply for the Mortgage Insurance Programme. The borrower can choose a monthly or bi-weekly mortgage repayment method. Repayment tenors can be up to 30 years.

 

 

Advantages of HIBOR-Based Mortgage Plan

Compared with the Prime-based mortgage plan, the borrower can enjoy a lower interest rate when using HIBOR-Based Mortgage Plan under the low interest rate environment. For example, based on the loan amount $4,000,000 with the loan tenor of 30 years, if the borrower adopts the HIBOR plan of H+1.3% and the 1-month HIBOR is 0.5%, the mortgage interest is 1.8%, the interest expense for the first instalment is around $5,997 only.

 

If the borrower adopts the Prime-based mortgage plan of P-2.5%=2.5% (P=5%), the interest expense of the first instalment is $8,333. In this situation, the interest expense can be saved 28% for the first instalment if using HIBOR-based mortgage plan. 

 

1-month Hibor rate=0.5% p.a.HIBOR-based mortgage interest rate=H+1.3%Prime-based mortgage plan interest rate=P-2.5%=2.5%
Monthly instalment amount$14,386$15,805
Monthly interest expense$5,997$8,333

(The above example is for reference only. The actual interest expense depends on the drawdown date and the mortgage rate. )

 

Interest rate cap

The HIBOR-Based Mortgage Plan usually provides an extra protection of interest rate cap. The plan will compare the HIBOR interest rate and interest rate cap, the lower interest rate will be adopted. For example, if the HIBOR plan is H+1.3% and the interest rate cap is P-2.5% (Mortgage interest rate = 2%), when the 1-month HIBRO rate is 0.5%, the mortgage interest rate for the month will be 1.8% instead of 2.5%.

 

1-month HIBOR rate = 0.5%HIBOR-based mortgage interest rate = H+1.3%Interest rate cap = P-2.5%
Mortgage interest rate1.8%2.5%
Result (Whichever is lower)

 

On the other hand, if the HIBOR rate rises to 2%, the mortgage interest rate for the month will be 2.5% instead of 3.3% (2%+1.3%).

 

1-month HIBOR rate=2%HIBOR-based mortgage interest rate = H+1.3%Interest rate cap = P-2.5%
Mortgage interest rate3.3%2.5%
Result (Whichever is lower)

(The above example is for reference only. The actual interest expense depends on the drawdown date and the mortgage rate. )

 

Different HIBOR periods

Apart from 1-month HIBOR period for selection, some banks can offer different HIBOR periods such as 3-month, 6-month or 12-month at HIBOR base. If a borrower expects the interest rate will move upwards, he can choose a longer HIBOR period to lock the interest rate. On the other hand, if he expects the interest rate will go downwards, he can choose a shorter HIBOR period. Normally, 1-month HIBOR period remains the most popular one.

 

Constraints of HIBOR mortgage plan

HIBOR mortgage plan is available for most of the schemes. However, some plans such as Government Housing Scheme like Green Form Subsidised Home Ownership Pilot Scheme or White Form Secondary Market Scheme are not eligible for the plan.

 

 

If you want to learn more information about mortgage or need help from our mReferral mortgage team, please feel free to reach us at 3196-6688.

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