Mortgages in Hong Kong: How Much Should You Borrow?
Mortgages in Hong Kong: How Much Should You Borrow?
Being approved for a home loan is exciting. After all, being a home owner seems like the ultimate sign of your financial maturity.
Well, the current Hong Kong housing market does not give much reason to be confident. According to the article published on SCMP.com, property foreclosures in the region are steadily rising. This is attributed to the deflation of home prices in Hong Kong. It is expected that more and more borrowers are failing to meet their mortgage payments each month. An expert revealed that foreclosed properties have doubled compared to the same time last year – from 60 to 130.
Despite this trend, the Hong Kong Monetary Authority shows that in May of 2016, the mortgage application increased by 13%. Apparently, people are still confident in their ability to buy a house. Since it is a common practice in Hong Kong to borrow a mortgage, people still have more than enough funds to make the purchase.
Of course, this is until the repayment comes into full swing.
It is great to own your house – but only if you own 100% of its equity. Unless you have done that, you should not feel too complacent about home ownership. It can still be taken from you once you fail to meet the monthly payments.
The best way to keep this from happening is to be very careful about the amount of your home loan. Borrowing too much increasing the risk of losing your house through foreclosure
Factors to consider when calculating your mortgage loan
Here are the different factors that are often ignored, but are very important when calculating the amount that you should borrow on your mortgage.
Identify the type of house that you need – not what you want.
Most of us rely on the pre-approved mortgage amount and use it as the basis of the property that we will borrow. While there is nothing wrong with this, you may be stretching yourself too thinly. If you were pre-approved for an HK$10 million home loan, you do not have to buy that 3-bedroom home in Kowloon. You can opt to buy a 2 bedroom flat in New Territories for only HK5 million. If you only have one child, and you have no plans of having more babies, than a 2-bedroom unit should be enough for your family.
Calculate the deposit you were able to save.
You should also consider the deposit that you were able to save. If you only saved HK$2 million for your deposit, why would you buy an HK$10 million home? You would have to borrow HK$8 million – which would make your loan to value ratio 80%. Why not look for a house that costs HK$5 million so you can meet the ideal 60% LTV ratio? Your loan will only be HK$3 million – which is much easier to pay off compared to the initial HK$8 million, right?
Real estate values in the location you want to buy into.
Another factor that will affect your home loan amount is the value of the homes where you will buy into. Property prices in Hong Kong Island are more expensive compared to New Territories. If you do not have to buy on the Island, why not opt to purchase a property where the values are cheaper?
Income, lifestyle, and financial commitments.
When you are calculating the home loan you will borrow, it is also important to consider your income, lifestyle expenses, and the other financial commitments that you make. If your lifestyle cost is already eating up half of your income, you either have to lower your standard of living or get a cheaper home to buy so you do not have to borrow too much. Your financial commitments should also come into play. If you are currently paying for other debt accounts, you need to ensure that you will not stretch your budget too tight that mortgage payments will become a burden to you.
Future financial goals.
Your financial goals should also be considered. Do you intend to borrow again in the future? Or do you have plans of starting a business? A huge home loan can compromise these goals – at least if you borrow too much.
Most of the time, people focus too much on their income. It is not the right way to calculate how much you should really borrow. It is important for you to consider the other aspects that could make mortgage payments harder to meet. Remember, the lower the mortgage, the less of a burden it would be and the higher the chances of you paying off your mortgage completely.
What to do if your mortgage is hard to pay off
But what about those who already borrowed a huge home loan and is currently having a hard time paying it off? Here are a couple of tips for you.
- Do something before you default! Do not wait until it is too late. Find a solution before you start missing out on payments.
- Know about the government’s Home Loan Interest. Also known as HLI, this is a deduction that you can get from your salary taxes. This can help give you some extra money for payments – if you qualify.
- Refinance your home. When you refinance, you can get a lower interest rate and longer payment term. That means you can lower your monthly payments. Of course, the lower interest rate is only possible if your loan is not yet in default – which is why you need to consider your options immediately.
- Negotiate your terms with the lender. As intimidating as it seems, you can always negotiate better terms with the lender. If the reason for your financial difficulty is unexpected and you had been good with your payments, then they may be able to help you meet your payments through better terms.
Ignoring the financial difficulty is not really the solution if your home loan payments are harder to meet. It is important to do something about it immediately so you can avoid foreclosure.
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