Many consider applying for a mortgage loan when trying to acquire a property. While it’s an appealing option to help secure their dream house, it’s imperative to pay attention to the mortgage rate. A mortgage rate is the interest charged on a home loan. It directly impacts the applicant’s monthly repayments and overall financial burden. For young adults or those starting families, buying a home often requires a mortgage due to the high cost of property in Hong Kong. However, high mortgage rates can make homeownership less affordable. Therefore, knowing what constitutes a “good” mortgage rate is essential for making informed financial decisions.
In this blog, you’ll learn all the factors that determine the attractiveness of a mortgage rate in 2024 and tips to secure a mortgage with the best rate for yourself.
Factors That Determine the Attractiveness of the Mortgage Rates in HK
Several factors influence how the attractiveness of mortgage rates is measured in Hong Kong, particularly in 2024. Consider each of them when evaluating whether the mortgage option has a desirable rate.
Base Interest Rates Set by the HKMA for Mortgage
The Hong Kong Monetary Authority (HKMA) sets the base interest rate for mortgage, which sits at 5.75% in 2024, in HK. This base rate serves as a fundamental benchmark for mortgage rates in Hong Kong. A higher base rate generally leads to higher mortgage rates, while a lower base rate can result in more favorable terms. If a lender sets their mortgage rate much higher than the base rate of 5.75%, it may indicate a less favorable mortgage option.
Types of Mortgage
The attractiveness of a mortgage rate can depend largely on the mortgage type one chooses due to varying plan structures. Most of the mortgages in Hong Kong are either Hong Kong Interbank Offered Rate (HIBOR)-based mortgages or prime rate mortgages (P-Mortgages). HIBOR-based offers potentially lower initial interest rates and an interest rate cap, as they are tied to the daily fluctuating HIBOR. A good mortgage rate typically falls within the 3.5% to 4.5% range for HIBOR-based loans, depending on the type of mortgage and lender. However, they are subjected to higher interest rate volatility, especially during periods of economic uncertainty.
Prime Rate Mortgages, starting around 4.125%, offer a more stable interest rate, as the prime rate is typically adjusted less frequently than HIBOR. While they may have slightly higher initial rates compared to HIBOR-based mortgages, they can provide greater predictability and financial security. This means that, depending on the mortgage plan type, an initial lower interest rate may carry a bigger risk of unpredictable monthly payments in the long run.
Economic Conditions
Economic factors like GDP growth and inflation significantly influence mortgage rates. Even with an unchanged mortgage rate, economic conditions can impact how attractive that rate appears. For example, a seemingly good fixed rate of 4% as of 2024 may become less favorable if inflation surges unexpectedly. While inflation has eased to 2.5%, a sudden spike could make the fixed monthly mortgage payments feel more burdensome. Conversely, a period of rapid economic growth, such as the projected GDP growth of 2.5% to 3.5% in Hong Kong in 2024, may increase demand for mortgages, potentially leading to higher interest rates and making the initial fixed rate seem more or less attractive in hindsight.
Market Competition
The competition for mortgage lending has become ever-intense with banks and other financial institutions in Hong Kong adjusting their rates to attract customers and maintain profitability in 2024. The competition makes a mortgage rate’s attractiveness relative. If all lenders increase their rates to unreasonably high levels, even an initially high mortgage rate may seem more favorable in comparison. Therefore, it’s essential to consider the overall market conditions when evaluating the mortgage rate.
Property Market Trends
With property prices expected to decline by 5-10% in 2024, following a 1.7% drop in the first five months, the property market in Hong Kong is experiencing reduced demand and transaction volumes. That shift may render previously attractive mortgage rates less appealing to homebuyers, making a lower rate, such as below 4%, appear as a more viable option.
Tips to Find the Best Mortgage Rate
While the factors mentioned above influence mortgage rate attractiveness, what constitutes the ideal rate can still vary based on individual circumstances. Consider the following tips when searching for the best mortgage rate:
- Consider Your Financial Situation: Assess your income, expenses, and savings to determine the mortgage amount and repayment terms you can comfortably afford.
- Determine Your Desired Loan Term: Longer loan terms generally result in lower monthly payments but higher overall interest costs. Choose a mortgage rate and term that align with your financial goals and timeline.
- Compare Offers from Different Lenders: Obtain quotes from multiple lenders to compare interest rates, fees, and other terms. This can help you find the most attractive mortgage option.
Contact Credit KO to Find Your Ideal Mortgage Solution
Credit KO offers expert guidance and assistance in securing the best mortgage rates. Our team can help you explore financing options and find the ideal mortgage loan solution for your needs. Let us help you navigate the HK mortgage market and secure your dream home.
