2025-03-12 28Hse Editor
The U.S. Federal Reserve recently announced a 0.5% interest rate cut, its first reduction in over four years. Following this, Hong Kong banks lowered their prime rates (P) by 0.25%, meaning that monthly mortgage payments for homeowners have decreased slightly.
In this rate-cutting cycle, many people are taking the opportunity to enter the property market. However, with Hong Kong's high property prices, many buyers find themselves spending their entire savings on the down payment, stamp duties, and other fees, leaving little to no funds for furniture or basic renovations. So, what can homeowners do?
According to current regulations from the Hong Kong Monetary Authority, banks, and the Mortgage Corporation, the down payment cannot be sourced from loans. When applying for a mortgage, borrowers must declare the source of their down payment. Common sources include savings, gifts from third parties, or proceeds from selling other properties.
Additionally, banks will review the buyer’s credit report to assess their borrowing status, so borrowing money from a bank to fund your down payment is not an option. But what if you apply for a loan after securing your mortgage to cover furniture or renovations? Will that affect your original mortgage?
Taking out another loan after your mortgage is approved won’t affect the existing mortgage, but it’s crucial to remember this: whether it's a personal or renovation loan, never apply for it before your mortgage is finalised. If you take out a loan before your mortgage is approved, it could negatively impact your mortgage application.
Whether or not a bank approves your mortgage depends largely on your debt-to-income ratio (how much of your income goes towards loan repayments). For first-time homebuyers, as long as your monthly mortgage payments don’t exceed 50% of your income, you should qualify. It's important to note, however, that when calculating the debt-to-income ratio, the bank will include all your other loan repayments along with the mortgage. So, if you already have other loans, there’s a chance your debt may push your repayments above the acceptable limit.
In general, most banks allow buyers to take out additional loans, but your total monthly repayments (mortgage plus other loans) should not exceed 75% of your income, though some banks may be more lenient and allow up to 80%. It’s always best to consult your bank first to understand their specific guidelines.
Many banks also offer renovation loan plans for those who want to renovate but lack sufficient funds. The advantage of these loans is that they offer higher loan amounts with repayment periods of up to 60 months, and approval is typically faster. However, the annual interest rate is usually higher than standard personal loans, meaning monthly repayments will be higher.
As for personal loans, the benefit is that the annual interest rate tends to be lower, but the loan amount is usually smaller compared to renovation loans. Buyers should choose the type of loan that best fits their financial situation. Whichever option you choose, keep in mind that the longer your repayment period, the more interest you’ll ultimately pay.
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