Housing prices in Hong Kong have been skyrocketing for many years now and show little signs of stopping. Bad for potential buyers but Although banks have been cutting their cash rebates, starting with HSBC in June, can still be a great idea with the right plan.
Here's 7 benefits of refinancing:
1. Cash-out for more capital
The housing market has its ups and downs in the short term, but generally, home-buyers from a few years ago have seen a rise in their properties’ market value. Take Taikoo Shing, the definitive middle class housing estate, as an example. According to Midland Holdings’ data, the price has jumped from $14k / sq. ft. in July 2016 to $21k / sq. ft. in July 2019 (a whopping 50% increase in three years)!
With mortgage refinancing, the gain in property value can be realised in cash. As mortgage rates are generally lower than those of personal loans, homeowners can obtain a sizable capital for investments elsewhere with a much lower interest rate. This is actually one of the biggest motivations to remortgage.
2. The cash rebate itself
For some, there may not be a need for investment capital, but some extra cash is always welcome. Some banks offer up to 2% cash rebate on mortgage refinancing. That’s $70k for a $3.5m property, enough for a few monthly instalments, a small-scale renovation, or a lavish European ski trip.
3. A better interest rate
Competing banks often lead to competitive rates. While the HIBOR and prime rate have been hovering steadily over 2%, mortgage plan from certain banks can offer interest rates as low as 1.68% which can lead to huge savings over time!
4. A Mortgage-Linked account
A mortgage-linked account is another powerful reason to refinance. These are savings account where the interest rate matches the mortgage rate. Essentially any money put in this account will be reducing the amount of interest you pay on the loan, and is way better than your usual savings account or time deposits!
5. To get the mortgage guarantor off the hook
Many home-buyers have their family members or relatives as their mortgage guarantors. While this move helps immensely in passing the stress test, it also puts the guarantor’s own credit status in a tough spot. If the homeowner’s income has since improved past what the stress test demands, it may be courteous to take the guarantor’s name off to free up their credit capacity.
This is a simple trick quite widely used by couples and families — the first purchase is made with one of the partners as the owner and the other as the guarantor; a few years down when they go for the second property, their roles switch. This way, they can acquire their two residences without incurring the punishing double stamp duty (DSD).
6. Cut costs on mortgage insurance
Insurance is mandatory when taking out a mortgage loan amounting to over 60% of the property value. Take the case of a $4m property owner who has taken out a loan of $2.8m (70% of property value). Say, the owner refinances the mortgage after the property’s worth has risen to $5m. The loan amount would then be under 60% 0f the total property value, giving the homeowner a pass from the mortgage insurance.
7. Reduce monthly payments
While a lot of homeowners look to leverage on the property for more loan at a low interest rate, mortgage refinancing is not only for debt creation. A refinancing can result in a longer loan repayment period with the same loan amount, relieving the monthly burden of the owner. Do keep in mind, that a prolonged repayment plan may mean more interest paid over the course of the period.
We've built a calculator to help you figure out how much you could save from refinancing or how your monthly payments would be affected, try it out!