Best Refinance Mortgage Plan 2022: An Overview of Refinance LTV, Best Interest Rate and Cash Rebate
Everything You Need to Know Before You Refinance Your Mortgage
What is Refinance?
No matter if the property you own is a new build property, second-hand property, village house or HOS flat, you can also refinance your mortgage, i.e. transfer your existing mortgage from your original money lender to a new one to meet your financial needs. Mortgage lenders can usually choose between HIBOR (Hong Kong Interbank Offered Rate) plan and prime plan for refinance.
If you have already owned your property for more than two years, the valuation of your property could be backdated to when you first purchased the property. If it’s worth under HK$6,000,000, the maximum LTV is 80% and you can cash out.
Although the 2019 policy address has relaxed regulations for first-home buyers, exempting them from stress tests for high LTV, it doesn’t apply to refinance. To apply for refinance, applicants must pass the stress test irrespective of LTV ratio.
There are two main types of refinance:
Refinance your mortgage for the remaining balance to get a better interest rate or change the terms
Transfer your existing home loan to a new money lender and increase the loan amount to meet your other financial needs
Compare Cash Rebate
| Refinance Plan of Major Banks | Prime Rate | HIBOR Plan | Cash Rebate |
|---|---|---|---|
| BOC | P(5.0%)-2.5% | H+1.5% | |
| HSBC | P(5.0%)-2.5% | H+1.5% | |
| BEA | P(5.25%)-2.75% | H+1.4% | |
| Compare All Refinance Plan and Cash Rebate |
Compare Refinance Interest Rate and Cash Rebate!
Why should I Refinance?
The benefits of Refinancing your Mortgage
1. Cash Out
When the value of your home appreciates, you can take advantage of equity built up in your home by withdrawing the difference between the two mortgages in cash.
2. Better Mortgage Rate
Enjoy a lower mortgage rate to save money. 3. Earn Cash Rebate
Besides lower interest rates, you can choose to refinance to earn cash rebate. 4. Get Rid of Co-financing Schemes
With a cash-out refinance plan, homeowners can borrow against your home equity to pay off the home loan and get rid of co-financing schemes with much higher interest. 5. Get Mortgage Link Account
Enjoy the benefits of a Mortgage Link account to reduce some of the interest you pay on your mortgage. The risks of Refinance - Things to know before you Refinance your Mortgage
When interest rates are low/ when the value of your property appreciates, refinancing your home loan may seem like a no-brainer. But this decision is not made without risks. Before you decide it’s time to refinance your mortgage, you need to consider below:
Penalty Fee will be Incurred during Lock-in Period
Home loan refinancing only makes sense when there are financial benefits. That’s why it’s important to know when your lock-in period will end. It usually lasts for 2-3 years. If you refinance your mortgage during the lock-in period, it will incur a penalty fee. You can check the exact end date in the Facility Letter. It is wise to plan ahead and shop around and start the refinancing process a few months before the new interest rate cycle kicks in.
Lost Value
If the LTV ratio is higher than 60%, it is mandatory to purchase private mortgage insurance (PMI). If the value of your home appreciates, you may want to get rid of PMI to get back some of your premium through refinancing. However, this may not go as planned if your value of your home goes down or in case of down valuation.
Rising Interest
It is important to take into account the fluctuation in interest rate before you refinance your mortgage, especially for mortgage borrowers originally on an H Plan.
For H Plan mortgage borrowers, it is important to take into account two interest rates - base rate (‘H+_%’) and ceiling interest rate (‘P-_％’). In case of rising interest rates, it is not worth it to refinance your mortgage.
To better understand the context, let's look at these scenarios:
Situation 1
Interest Rate: Low
If the interest rate is low, then HIBOR will remain low, without hitting the interest rate ceiling. Then it makes sense to refinance your mortgage from one bank to another, taking advantage of a better interest rate.
Situation 2
Interest Rate: High
In case of rising interest, you may end up paying more with a higher interest rate ceiling in the new plan. This may not be offsetted even with a Mortgage Link Account.
Contact our Mortgage Specialists today to learn more
Basics of Refinancing
Refinance for different types of properties
HOS flats
Even HOS flats without premium payment may be able to enjoy a better interest rate or cash rebate through refinance. But this needs to be approved by the Housing Authority. Please bear in mind that owners cannot obtain additional finance from the existing mortgage or extend the repayment period. Only P Plan is applicable to HOS flat owners. Refinancing is a good way for owners to get some extra cash e.g. cash rateb every time the penalty period is over.Co-financing Schemes
Homeowners of new buy properties who are in lack of funds may make use of co-financing schemes offered by developers for home purchasing. This scheme usually comes with an initial attractive interest rate for 2-3 years, followed by a very high subsequent interest rate. Therefore, a lot of homeowners would like to get rid of this before the offers end. Under the 2019 policy address, property valued under HK$10,000,000 can take out a 80-90% mortgage. Although owners cannot obtain additional finance through refinance, they can switch from co-financing schemes to residential mortgage loans offered by banks. Village Houses
To apply for refinance for village houses, it is important to take into consideration factors that will affect your mortgage application e.g. quality and down valuation. For village houses, both P Plan and H Plan are available. Public Housing
Owners of public housing may be able to enjoy a better interest rate or cash rebate through refinance. But like HOS flats this needs to be approved by the Housing Authority. Please note that owners cannot get additional finance from the existing mortgage or extend the mortgage terms.
Refinance max LTV ratio
| Property Value | Max LTV | |
|---|---|---|
| HK$6M or below | 80% | |
| HK$6M- 8.34M | 60% (Max: HK$5M) | |
| HK$8.34M- 10M | Max: HK$5M | |
| HK$10M | 50% |
Find your Refinance Mortgage Plan now!
What is a Mortgage Link Account?
Mortgage Link account is an account offered to mortgage borrowers by banks with an interest rate equivalent to the mortgage loan interest rate. It allows mortgage borrowers to offset some of your mortgage interest.
Benefits of Mortgage Link Account
Reduce interest on your Mortgage Loan
Mortgage Link Account matches your savings interest rate to your mortgage interest rate for up to 50% of your home loan amount, giving you better returns on your savings. Some banks even allow you to link 3 accounts so you can save together with two other family members.
Greater flexibility in managing your finances
You can withdraw money from your mortgage link account anytime you like, offering great flexibility in managing your wealth than fixed term deposit.
Cash-out/ Earn rebates with no costs together with Refinance
When the value of your home appreciates, you can cash out through refinance and put the additional cash you have withdrawn to your new mortgage link account to offset the mortgage interest.
Things you should know about Mortgage Link Account
Deposit limit
There is a limit to the amount of money you can deposit to your mortgage link account. It is usually set to be 50% of your home value but some banks may set the limit as 60%. Please bear in mind that the amount will reduce further as the time goes by as you have already paid off some of your home loan.
Tax deductible interest
You can get your interest in two ways - either by receiving monthly interest directly or by reducing your home loan/ interest directly. It is important to know that the interest paid on home loan is tax deductible. Therefore, the way you choose to receive the interest will affect your deductions allowance in tax.
Funds may not be protected
Not all Mortgage Link Accounts are protected. It is best to check with your bank before you deposit.
Refinance Application process
Compared to New Buy Mortgage, applying for a refinance mortgage is less complicated. You can start as early as 3 months before your existing mortgage ends. MoneySmart advises you to wait until your application is approved before processing the paperwork in person at the branch and appointing a solicitor.
How to apply for a Refinance Mortgage?
1. Stress Test
Stress test is calculated at the current interest rate plus 3%. In order to pass the test, it requires the applicant’s DSR to be less than 60% if he/she doesn’t not have a home loan. If he/ she does, the DSR needs to be 45%. Passing a stress test is a prerequisite for applying for refinance.
What documents are required when applying via MoneySmart?
Documents required:
- Proof of identity such as Hong Kong ID card
- Residential proof such as utility bills
- Recent 3-month payslip
- Recent 3-month bank statement
(showing income and mortgage) - Recent one-year tax return
- Recent 3-month mortgage notice (refinance)/ provisional sale and purchase agreement (new finance)
- Recent 3-month repayment record
(e.g. car loan, personal loan, etc)
Why apply for refinance through MoneySmart?
One-stop service
To apply for refinance, you will need to do a lot of research to understand the offers, tie-in period, etc. from different banks in order to get the product that suits your situation the most. If you are time-deprived like most of the Hong Kong people, you can leave it with MoneySmart Mortgage Specialists who will sort this out for you in a short period of time.
Quick mortgage approval
MoneySmart will follow up on your application directly and we have a direct contact at the mortgage department of each major bank. You can apply for an array of plans with a consolidated application form and the application results will be available in just 9 working days. MoneySmart will remind you upon successful application and provide you with advice and any assistance you may need until you have successfully taken out the mortgage.
No hidden charges
There are no hidden charges. MoneySmart is an online financial product aggregator, meaning we do not charge any fees to our customers. Instead, we offer a wide range of promotions and offers. MoneySmart gets commissions from the bank that you have successfully applied for through us.
Refinance tools
Refinance FAQ
How is LTV calculated?
- LTV ratio is calculated based on dividing the loan amount by the appraised value of the property.
Is passing the stress test a prerequisite for refinance?
- Yes, passing a stress test is a prerequisite for applying for refinance. In order to pass the test, it requires the applicant’s DSR to be less than 60% if he/she doesn’t not have a home loan. If he/ she does, the DSR needs to be 45%.
Do I need to inform the existing mortgage lender of my refinance application?
- No. If your refinance application is successful, the solicitor that you appointed will get the legal documents completed and transferred with the previous mortgage lender. If your application is unsuccessful, your existing plan will not be affected.
What is the Mortgage Insurance Programme ('MIP')?
- Launched by The Hong Kong Mortgage Corporation Limited ('HKMC'), Mortgage Insurance Programme ('MIP') provides mortgage insurance to banks to offer mortgage loans with higher LTV ratio (80-90%) without taking additional credit risk. The premium can be paid in one go, yearly or in instalment calculated into the mortgage.
How to get back some of the MIP premium?
- If homeowners can get rid of MIP in two years, 25% of the premium can be returned and 15% of the premium can be returned if homeowners can get rid of it in 3 years.
Compare Refinance Mortgage plans
MoneySmart can reach the mortgage departments of major banks directly, expediting your refinance mortgage application. To find out more about interest rates and cash rebate, please contact MoneySmart Mortgage Specialists today!
