Beginners Must Read: HIBOR vs Prime Rate Comparison & Application Process

The previous article explored the fundamentals of mortgages and the "income/assets" approval criteria. This article will further analyze mortgage rate options (HIBOR vs Prime Rate), the practical application process, and the core approval points from banks, helping mortgage beginners efficiently plan their property purchase finances.

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How to Choose a Mortgage Rate? HIBOR vs Prime Rate Comparison

Mortgage rates directly impact long-term repayment burdens, but the complex terminology often confuses beginners. Below are the key differences and suitable scenarios for the two mainstream rate types:

Type	H-Mortgage (HIBOR Mortgage)	P-Mortgage (Prime Rate Mortgage)
Calculation Method	1-month interbank offered rate + fixed interest rate (e.g., H + 1.3%)	Prime rate - fixed margin (e.g., P - 2.5%)
Features	Interest rate fluctuates greatly, but with a capped interest rate guarantee	Interest rate is stable and not affected by market interbank rates
Applicable Situations	Interest is more economical in a low-interest environment (mainstream choice in 2024)	Suitable for those pursuing repayment stability

Beginner Tip: HIBOR-linked mortgages offer flexibility and potential interest savings in low-rate environments, with the cap rate providing protection, making them the choice for most buyers. If sensitive to rate fluctuations, consider Prime Rate-linked mortgages.

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Mortgage Application Procedures

1. Stress Test (Cancelled in 2024)

Previously, mortgage applicants had to undergo a stress test. Introduced after the 2008 financial crisis, the HKMA required borrowers to ensure their monthly repayments would not exceed 60% of their income under a hypothetical +2% interest rate hike.

Stress Test Cancelled in 2024

Although the stress test has been cancelled, banks will still review:

• Stability of income (need to provide tax returns, employment contracts, and recent salary certificates, etc.)

• Credit rating (TU report needs to reach A-B level)

• Debt Service Ratio (DSR) requirement (maintained at ≤ 50%)

Reminder: Although the stress test has been cancelled, the DSR threshold may still affect the loan amount. It is recommended to calculate the repayment ability in advance.

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2. Mortgage Insurance

If the loan-to-value ratio exceeds 60%, the excess part is insured by the mortgage insurance company, and the buyer needs to pay a premium (about 1%-5% of the loan amount). The premium payment methods include:

• One-time payment

• Annual payment

• Adding to the loan amount and repaying in installments

Note: High loan-to-value mortgages are usually accompanied by higher interest rates, so it is necessary to comprehensively evaluate the long-term costs.

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3. Bank Valuation

For any mortgage application, the bank will evaluate the market value of the property based on market transaction data before approving the mortgage. This valuation will directly affect the loanable amount. To avoid the down payment gap caused by "insufficient valuation", it is recommended:

• Buyers check the valuation in advance through the bank's online system

• Refer to recent transaction cases in the same district and reserve 5%-10% buffer funds

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3 Key Tips for Bank Approval

1. Improve credit score: Pay off credit card debts on time and avoid multiple inquiries about the TU report in a short period

2. Stable income proof: Salaried employees are more likely to get approval; self-employed persons need to prepare 2 years of financial statements

3. Compare bank terms: In addition to interest rates, pay attention to cash rebates, penalty periods, and flexible repayment terms

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Conclusion

Property purchase is a long-term commitment. Understanding the details of mortgages and long-term financial planning can effectively reduce financial risks.

It is recommended to reserve at least 6 months of income certificates, maintain a good credit record, compare multiple bank schemes, and consult professional advisors when necessary to customize the most suitable loan strategy.