[P Mortgages] What is a P mortgage? And is it the best choice for buying a property? Should I choose P, H, or fixed-rate mortgages when buying a property?

Hong Kong banks mainly provide two types of mortgage plans. The first type is P Mortgages (Prime rate mortgages), and the other is H Mortgages (Hong Kong interbank offered rate mortgages, or HIBOR-based mortgages). According to the data from the Hong Kong Monetary Authority, most borrowers currently choose H Mortgages. Determining which type of mortgage interest rate may be the best option for you as a homebuyer can be confusing. Commonly asked questions include; what is the difference between these two payment methods? How should we calculate the actual interest expenses? And, with the government's recent introduction of fixed-rate mortgages, which mortgage plan is the most suitable for us? Continue reading to find out the answers to these questions.

In an interest rate hike cycle, should I choose P or H Mortgages?

During an interest-rate hike cycle, some banks' P Mortgage products may be better than H Mortgages. We can compare different mortgage plans to see which one saves us more on interest expenses.

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What are P Mortgages?

P Mortgages refer to mortgage plans based on the prime rate, where P refers to the prime rate (Prime Rate), which is the basic loan interest rate that every bank provides to high-quality customers. In addition to mortgage loans, personal loans, credit card interest rates, and deposit account interest rates are also affected by the prime rate.

How are P Mortgages divided into "Big P" and "Small P"?

There are four "P"s in the market, as follows:

How are P Mortgages calculated?

Currently, P Mortgages are generally represented by "P-", for example, if we see P-2.5% when applying for a mortgage, we need to understand which "P" the mortgage plan's bank uses. If it belongs to 6%, the actual interest rate is 6% - 2.5% = 3.5%. If the prime rate is 6.25%, the actual interest rate is 6.25% - 2.5% = 3.75%. However, if the P mortgage plan is "P+1%", the actual interest rate is 6.25% + 1% = 7.25%.

What factors affect P Mortgages?

Currently, the prime rate is affected by US monetary policy. The Federal Reserve, which manages the policy, stimulates economic recovery by adjusting the federal funds rate. When the federal funds rate rises, the prime rate also moves in the same direction.

Why are P Mortgages not mainstream in a low-interest environment?

In a low-interest environment, the Hong Kong Interbank Offered Rate is usually lower, and the actual interest rate using H Mortgages is usually cheaper. Therefore, most people choose H Mortgages. However, during an interest rate hike cycle, the increase in the Hong Kong Interbank Offered Rate may be higher than the prime rate, and the advantage of using P Mortgages will increase.

Why are P Mortgages more stable than H Mortgages?

P Mortgages are more stable mainly because the prime rate changes less frequently than the Hong Kong interbank offered rate.

What are H Mortgages?

The "H" in HIBOR stands for "Hong Kong Interbank Offered Rate," which is the interest rate charged when banks lend money to each other. HIBOR-based mortgages are mortgage plans that use the HIBOR as a benchmark. Typically, the mortgage interest rate is the HIBOR rate plus a certain percentage, such as H+1.3%, using the one-month HIBOR rate.

When does the HIBOR rate increase?

When banks are short of funds and borrowing costs increase, the HIBOR rate will rise. If you want to know the trend of the HIBOR rate, you can pay attention to the daily HIBOR published by the Hong Kong Association of Banks.

What is the HIBOR-based mortgage interest rate cap?

The HIBOR rate can be volatile. If the HIBOR rate increases rapidly, the expenses of HIBOR-based mortgages will increase sharply. Therefore, most banks currently offer an "interest rate cap" (or "ceiling") for HIBOR-based mortgage plans. When the interest rate is higher than the interest rate cap, the interest rate of the cap can be used to pay for the mortgage. For example, if a bank's mortgage plan is H+1.3%, and the actual interest rate cap is 3.375%, if the HIBOR rate rises to 3%, the actual interest rate of the mortgage will rise to4.3%. However, the borrower can still use 3.375% to pay for the mortgage.

What types of properties can use HIBOR-based mortgage plans?

HIBOR-based mortgage plans can be used for private housing estates, standalone buildings, village houses, tong laus (Chinese Tenement Buildings), Home Ownership Scheme (HOS) flats, and Green Form Subsidised Home Ownership Scheme (GSH) units.

What is a fixed-rate mortgage?

Currently, a fixed-rate mortgage generally refers to a trial program launched by Hong Kong Mortgage Corporation Limited, which provides options for 10-year, 15-year, and 20-year fixed-rate mortgages for homebuyers.

How to choose between P, H, and fixed-rate mortgages?

The choice of P, H, or fixed-rate mortgages depends on the borrower's financial background and needs. If you want to save on interest payments in a low-interest rate environment, you can choose an HIBOR-based mortgage.

In summary

There are many types of mortgage plans, and if you want to know which plan is most suitable for your financial situation and property type, mReferral can provide the best mortgage advice to help you step onto the property ladder more easily.

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