The majority of home mortgages are based in Hong Kong Interbank Offered Rate or Hong Kong Dollar Prime Rate. Generally, the procedures for application of a refinancing mortgage plan do not differ much from that of a regular mortgage loan.
In a nutshell, refinancing a mortgage means to conclude an existing loan on your mortgage and replacing it with a new one. Determining whether or not you should do it gets a little more complicated.
Homeowners refinance for a variety of reasons, they include:
- Switching between fixed and adjustable rate mortgage
- Securing a lower interest rate
- Adjusting the mortgage term
- Debt Consolidation
- Converting a portion of home’s equity into cash
As with most things in finance, they can get a little tricky. Consider the reasons which influenced this decision while assessing market viability and getting properly acquainted with the process.
Refinance, or not?
Hong Kong boasts a relative healthy growth in property developments, owed mainly to due to continual low interest rate. That may change soon enough, as we have seen the rates rising back in 2013. A general rule of thumb suggests that it is fine to go ahead if there is a reduction of about 1-2% off the interest rates. Do your calculations; ensure that the potential savings appropriately outweighs any fees payable to enable the refinancing process.
If the reason for refinancing is to reexamine your monthly finances attributed to your current mortgage loan, make sure you know what you are getting into. Increasing the term will reduce your monthly obligations, but it will inevitably mean paying more toward interest in the long run. Similarly, ascertain your financial strength before committing a term reduction; don’t get too carried away with the idea of potential savings. Financial planning is more than just simple math!
Given the possibility that interest rates in Hong Kong may move into an upwards trend in the coming years; many may have considered switching from an adjustable-rate mortgage into fixed-rate mortgage for an ease of mind. In simple theory, it may sound like a good idea. However, if you have committed to your current mortgage for a long time, your repayments will shift toward paying for your principal. That basically means you are building equity, which won’t make a lot of sense if you refinance and go back to restarting the interest payment process.
Taking the next step
Hong Kong Monetary Authority requires banking institutions to follow an ethical code of conduct, and provide transparent representations of the costs and benefits associated with a refinancing proposal. Begin the search for a new plan from your current lender as chances are they will want to keep you with them. It is highly possible they will make some kind of offer that eliminates a part of typical refinancing fees.
The idea is to treat the search process as you would to look for good bargains. Shop extensively and compare what different lenders offer you – of both the interest rates and the costs. Keep in mind that your credit records will impact the rate in which you are quoted. A good tip is to ask for lock-in rate, which will ensure you are entitled what you are offered at the time you close the loan.
What you need
Most banks will require the following documentations to process your refinancing application:
- Passport of HKID of applicant/borrower and guarantor (if applicable)
- Latest repayment schedule
- Bank statement reflecting the latest 3 months’ payroll
- Latest tax return
Refinancing can be a double-edge sword. It is crucial to have a clear overview at your financial situation. In essence, the process is to correct a previous step. The last thing you want is to make a financial move that brings you further away from your financial goals.