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Fundamentals of Prime-Based Mortgage Plan
A Prime-Based Mortgage Plan is calculated based on the Hong Kong Prime Rate of banks. Prime (P) Rate is the basic loan interest rate that banks give to customers with the best credit quality. The interest rate of Prime-Based Mortgage Plan (P Plan) is quoted as Prime rate minus a certain percentage point (P-X%). There are 4 types of Prime Rate in Hong Kong, and they are shown as below:
|5%||HSBC, Hang Seng Bank, Bank of China(HK), Chiyu Banking Corporation and Nanyang Commercial Bank|
|5.25%||Standard Chartered Hong Kong, Bank of East Asia, Industrial and Commercial Bank of China (Asia), China Construction Bank (Asia), China CITIC Bank International, Citibank (Hong Kong), DBS Bank (Hong Kong), Dah Sing Bank, CMB Wing Lung Bank, Bank of Communications, Chong Hing Bank|
|5.375%||Fubon Bank, Public Bank|
|5.5%||OCBC Wing Hang Bank|
For example, based on the loan amount $4,000,000 with the loan tenor of 30 years, if a borrower chooses a Prime-Based Mortgage Plan of P-2.5% and the prime rate is set as 5%, the interest rate will be 2.5% (5%-2.5%). The interest expense of the first Instalment is $8,333. If the Prime Rate of a bank is 5.375%, the interest rate will be 3% (5.375%-2.5%). The interest expense of the month is 2.875%, and the interest expense of the first Instalment is $9,583.
|Bank A||Bank B|
|Monthly instalment amount||$15,805||$16,596|
|Monthly interest expense||$8,333||$9,583|
(The above example is for reference only. The actual interest expense depends on the drawdown date and the mortgage rate.)
Advantages of Prime-Based Mortgage Plan
As the Prime rate in Hong Kong is more steady compared with HIBOR-Based Mortgage rate, the monthly repayment will be more stable. Borrower can take control of his financial status easily. The Prime-based mortgage plan also lowers the risk of interest fluctuations in the short term.
Compared with HIBOR-Based Mortgage Plan, Prime-Based Mortgage Plan is eligible for more housing schemes such as Green Form Subsidized Home Ownership Pilot Scheme, White Form Secondary Market Scheme, industrial and commercial properties loan and car park loan.
Features of Prime-Based Mortgage Plan
Prime-Based Mortgage Plan is suitable for the new purchases of the primary and secondary property market, refinancing and cash-out refinancing. The loan amount can be up to 90% of the purchase price. If the Loan-to-Value (LTV) ratio is over 60%, they need to apply for the Mortgage Insurance Programme. A monthly or bi-weekly mortgage repayment method can be chosen. The repayment tenor can be up to 30 years. Prime-Based Mortgage Plan also has deposit-linked feature so that more interest can be saved.
Will the Prime Rate increase over time?
Although the prime rate is determined by individual banks, their decisions are influenced by the US Federal Reserve. When the Fed increases the fund rate, Hong Kong banks may not follow the increase in the short run if their deposit base is still massive. However, if the banks face a massive outflow of funds, the prime rate may be increased in the long run.
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