It was a scary time. With the help of my real estate agent Martin, I finally found a home after an 18-month search. Martin determined that I was in a bidding war with two other prospective buyers, so I raised my offer and gave them a hefty deposit to seal the deal. Then I got the bad news: my bank told me to have a Plan B because my chances of getting a mortgage were not looking good based on my tax receipts.
That statement led to many sleepless nights. To buy a home in Hong Kong, a provisional agreement for sale and purchase must be in place and signed by both the seller and buyer before any bank will consider a loan.
By this time, I had already forked out the initial deposit. Yet if my likelihood of repayment did not meet a bank’s approval – and this approval process could take up to two weeks – I would be out my initial deposit. If the bank takes longer to decide, I could also be out the interim payment, which is due about two weeks after the initial deposit. And, since I was the one breaking the deal, I would be responsible for paying a double penalty (or double the amount of the initial deposit) to the seller, plus double my agent’s commission.
It’s a catch-22 to be sure, and I appreciated my bank manager Simon advising me to err on the side of caution.
My situation is not uncommon: I am the sole proprietor of a small business I run from home.
Though I keep stringent records, I expense a lot of what would be considered living expenses due to the nature of my work. Think of people such as insurance agents: they expense meals, travel and clothing, as much of their work involves entertaining clients.
When I was practising interior design in Toronto, one of my clients was an alternate moneylender called Home Savings & Loan.
It billed itself as an alternative to banks, with lower interest rates than credit unions.
While I know that moneylenders such as UA Finance or Promise are prevalent in Hong Kong due to their prominent advertisements, I began to ask around for a Home Savings & Loan’s Hong Kong equivalent rather than try another bank.
In a financial hub such as Asia’s world city, there must be options. When I hit brick walls with homebuyers I knew who all went the traditional route with banks, I took a look at The Hong Kong Mortgage Corporation’s (HKMC) website to determine which approved money lenders were listed aside from the dozens of banks in the city.
That was how I came across ORIX Finance Services. Listed on HKMC’s website, it was one of a half-dozen approved mortgage loan sellers.
I decided to implement Plan B immediately, in order to have a back up in place if things went pear-shaped with my bank. A walk-in visit to check out ORIX resulted in an impromptu meeting with Josephine, one of its representatives who discussed what her company was all about at great length.
ORIX, like Promise and UA Finance, is headquartered in Japan, and its Hong Kong operation has been around since the early 1970s.
Its core business is the equipment financing for big corporations, while its consumer financing section covers vehicle and home mortgage loans.
Josephine emphasised it does not promote its mortgage loans, which makes up a small percentage of its overall business. However, she was perfectly happy to hear me out and assess whether I would qualify for a loan with her organisation. I breathed a sigh of relief: now that my eggs were in more than one basket, I felt more confident about planning ahead on renovations for my new home.
While in countries such as Canada, where the interest rates between banks and alternate lenders vary only by a per cent or two, ORIX and similar finance companies lend out at prime to prime plus 1% . With prime being 5.25%, that is more than three to four per cent higher that the rates many major banks charge for a home mortgage loan.
That equates to an extra five to seven thousand per month for properties costing less than $7 million for payments on 20-year mortgages with a loan-to-value ratio of 60%.
While five extra grand is a hefty chunk to fork over every 30 days, it still beats losing out on my dream home altogether – not to mention all the associated penalties.
ORIX also had a few other clauses that differ from banks. If I paid off my loan within the first two years, there is a penalty of a certain percentage on the original loan amount. Ditto for early partial repayments; for example, from the third year onwards, the penalty is a fixed $2,000 for every partial repayment.
In comparison, most banks allow for partial repayments without penalty after the first year that the loan is in place. ORIX also charges for the valuation fee of the property, while banks will usually waive that fee.
After I submitted all the same documents I gave to my bank, Josephine asked me to also provide some photos of the site. She was able to make me an offer within a couple of days, while Simon took 10 working days to finalise his. In the end, I went with my bank, as the lower interest rate was the more sensible choice. But I’m glad I had the reassurance of Plan B in my back pocket.