Ballots drawn on March 26 for the Sale of Home Ownership Scheme Flats 2014 brought about mixed feelings in the city. Those who didn’t make it will need to wait until the next batch of Home Ownership Scheme flats or try looking into the private market. As for those who are lucky enough, it was a giant step forward to having a house to call their own. But the challenge is what comes next – for instance a raise in the Fed’s rates – this could be detrimental not only to HOS applicants, but also to potential homeowners.

Following the government’s prudential measures for mortgage loans, the maximum loan amount has decreased from 70% to 60% of the property price. So even when you’ve found your dream home, you would still have to find a way to pay the downpayment. If you want to borrow over 60%, aside from lending companies, you can consider mortgage loans specifically offered by banks for the Home Ownership Scheme. In this case, the Housing Authority would act as a guarantor for the mortgage, enabling Green Form applicants to borrow up to 95% LTV ratio and 90% LTV ratio for White Form applicants. As the Housing Authority is the guarantor, there is no need to pay the extra insurance fee (which is usually 2 to 3% of the loan amount) and applicants are exempted from the stress test as well.

If you weren’t one of the lucky ones this time and have to look at other options like buying private property or paying the premium for your subsidised flat, you can opt for the Mortgage Insurance Programme (MIP). Under the MIP, the interest rate will be the same as other mortgage plans offered by banks, while interests are paid off together with the principal each month, just like other mortgage plans. However, there are more restrictions posed upon applicants under the MIP, for instance, the value of the property cannot exceed HK$4 million and the applicant has to be employed in Hong Kong.

Beware of increase in interest rates

If you’re a flat owner under the HOS, the insurance fee and stress test is waived because the Housing Authority acts as the guarantor for you. However, bear in mind that although the government provided assistance in terms of down payment, there is still the risk of raised interest rate – the Fed’s announced last week that the interest rates will be raised in the year 2015. If the interest rates in the U.S. increase, Hong Kong will follow suit. In turn, your monthly payment would be increased too. Therefore, it is better to be more cautious when it comes to reviewing your borrowing power. To avoid foreclosure, don’t bite off more than you can chew!

If you want to learn more about mortgage plans or how mortgage works, stay tuned with MoneyHero for more information!