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Understanding Mortgages, Interest Rates and Down Payments

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Mortgage Insurance Programme (MIP)


According to the guideline of the Hong Kong Monetary Authority, banks have to comply with a 70% loan-to-value ("LTV") guideline on residential mortgage lending. Yet, with the MIP providing mortgage insurance to banks, banks can lend out mortgage loans more than 70% of the value of the property without incurring additional credit risk. As long as an application meets the relevant eligibility criteria, the bank can lend a mortgage loan of up to 90% LTV ratio under the MIP. In other words, homebuyers may only need to pay 10% of the property price for down payment, which greatly reduces their down payment burden.


Under the MIP, banks lend out mortgage loans, while the insurance premium is paid by the homebuyers. The mortgage insurance aims to protect the participating banks from losses, in general, on the portion of the loan over the 70% LTV threshold due to mortgage payment default by the borrowers. Therefore, in addition to helping people achieve home ownership, the MIP also contributes to maintaining the bank stability. In all, it creates a win-win situation for both homebuyers and banks.


The Corporation announced the following revisions to the MIP on 10 June 2011:


The Corporation announced on 10 June 2011 that it will lower the cap on the value of property that can be covered under the Mortgage Insurance Programme (MIP) from HK$6.8 million to HK$6 million. As a result, for mortgage loans with MIP cover starting from 70% loan-to-value (LTV) threshold, the maximum loan amount will be reduced from HK$6.12 million to HK$5.4 million. Meanwhile, for mortgage loans with MIP cover starting from 60% LTV threshold, the maximum loan amount will be reduced from HK$6 million to HK$5 million. In addition, the MIP will not be available to applicants whose principal income is not derived from Hong Kong. This change is adopted to take account of the prudential measures for residential mortgage loans announced by the Hong Kong Monetary Authority.


See Figure:

90% MIP with Maximum Loan Amount Up to HK$5.4 Million

Description: Insurance Eligibility Criteria for Floating Rate Mortgages and Fixed Adjustable Rate Mortgages up to HK$5.4 million with Loan-to-Value ratio above 60% up to and including 90% and secured on completed private residential properties or properties under construction.

Note: With effect from 11 June 2011, the MIP will not be available to applicants whose principal income is not derived from Hong Kong.
The Insurance Eligibility Criteria are summarised below:
Product type (a) Floating Rate Mortgages
(b) Fixed Adjustable Rate Mortgages
Maximum property value HK$6,000,000

(Pursuant to the purchase price of the Property as stated in the sale and purchase agreement. For refinancing loans, the property value shall be the appraised value of the Property, if applicable.)
Maximum loan amount at origination HK$5,400,000 (or HK$5,000,000 if the LTV Threshold is lower than 70% of Value at Origination)

Only fully amortising mortgage Loans are eligible for Cover.

Mortgage loans with balloon payments, payment holidays and Deferred Principal Repayment Loans are not eligible for cover.
Determination of Loan-to-value("LTV") ratio: 90%(may exceed 90% to the extent the Premium is financedby the mortgage loan)

The purchase price must exclude the value of any incentives offered by the relevant vendor or any other third party to the Borrower / Mortgagor in relation to the purchase of the Property.
Minimum LTV Threshold60%
Calculation of Debt-to-Income(DTI) ratio
  • Maximum debt-to-income ratio at origination
50%
45%(For self-employed (non-professional) Obligor if the LTV ratio is above 85%)
Maximum original term to maturity40 years
Maximum sum of "remaining term to maturity" and "age of Property" at origination and throughout the life of the mortgage loan75 years(subject to case by case approval where it exceeds 50 years)
Borrower typePersonal customers
Type of propertyThe property must be a residential properties located in Hong Kong.

Properties under construction#, excluding village houses, are eligible for coverage.

#The property development project must be covered by the Consent Scheme and scheduled for completion within 12 months from the Loan Drawdown Date, i.e. the Building Completion Date must be within 12 months from the Loan Drawdown Date
Owner occupancyAt least one of the income generating Borrower(s)/ Mortgagor(s) / Guarantor(s)* must physically live in the Property and use the Property as his / her primary residence while Cover is maintained, or until such requirement is waived at the discretion of the HKMC and its reinsurers.

The occupying Borrower / Mortgagor / Guarantor’s* income must not be less than the sum of monthly mortgage instalment payment and his/her other monthly debt obligations.

*Guarantor must be the immediate family member or fiance of Borrower or Mortgagor.
Premium ratesSingle and Annual premium payment option, no premium refund arrangement for the following products:
  • Loan tenor exceeds 30 years; or
  • Under Annual premium payment option.
Down paymentThe down payment for the purchase of the Property must be paid from the Borrower / Mortgagor’s own assets and must not have been financed by way of any loan or banking / credit facility.
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85% MIP Cash-out Refinancing Loan
with Maximum Loan Amount Up to HK$5 Million

Description: Insurance Eligibility Criteria for Floating Rate Mortgages up to HK$5 million with Loan-to-Value ratio above the 60% LTV up to and including 85% and secured on completed private residential properties.

Note: With effect from 11 June 2011, the MIP will not be available to applicants whose principal income is not derived from Hong Kong.
The Insurance Eligibility Criteria are summarised below:
Product typeFloating Rate Mortgages
(Note: Not applicable to Fixed Adjustable Rate Mortgages)
Maximum property valueHK$6,000,000
Maximum loan amount at originationHK$5,000,000

Only fully amortising mortgage Loans are eligible for Cover.

Mortgage loans with balloon payments, payment holidays and Deferred Principal Repayment Loans are not eligible for cover.
Maximum Loan-to-value ("LTV") ratio:85%(may exceed 85% to the extent the Premium is financed by the mortgage loan)

The appraised value of the Property# will be taken as the value of the Property. However, if the date of the formal sale and purchase agreement falls within 2 years before the date of the application, the lower of the purchase price of the Property as stated in (a) the sale and purchase agreement and (b) the relevant assignment will be taken as the value of the Property if it is lower than the appraised value of the Property. # The HKMC reserves the right to re-verify the appraised value of the Property.
Minimum LTV Threshold60%
Calculation of Debt-to-Income (DTI) ratio
  • Maximum debt-to-income ratio at origination
50%
Maximum original term to maturity25 years
Maximum sum of "remaining term to maturity" and "age of Property" at origination and throughout the life of the mortgage loan75 years (subject to case by case approval where it exceeds 50 years)
Borrower typePersonal customers
Type of propertyThe property must be a residential properties located in Hong Kong.

Properties under construction are not eligible for coverage.

Village House (property registered in the name of a "Tso", "Tong" in New Territories are not eligible for Cover in MIP) may be considered on a case-by-case basis.
Employment TypeNon-regular salaried / self-employed persons are not eligible for cover, except for self-employed professionals such as medical practitioners, barristers, solicitors, or certified public accountants qualified to practise in Hong Kong or other professional categories acceptable to the HKMC.
Premium ratesSingle and Annual premium payment option (with no premium refund arrangement).
Owner occupancyAt least one of the income generating Borrower(s)/ Mortgagor(s) / Guarantor(s)* must physically live in the Property and use the Property as his / her primary residence while Cover is maintained, or until such requirement is waived at the discretion of the HKMC and its reinsurers.

The occupying Borrower / Mortgagor / Guarantor’s* income must not be less than the sum of monthly mortgage instalment payment and his/her other monthly debt obligations.

*Guarantor must be the immediate family member or fiance of Borrower or Mortgagor.
RefinancingIf the intended mortgage Property was purchased within 2 years of the date of the application (based on the date of formal sale and purchase agreement), the value of the Property for the purposes of calculating the maximum LTV ratio shall be the lesser of (i) the appraised value of the Property#; (ii) the purchase price of the Property as stated in the relevant sale and purchase agreement; and (iii) the purchase price of the Property as stated in the relevant assignment.

If the intended mortgage Property was purchased 2 or more years prior to the date of the application (based on the date of formal sale and purchase agreement), the value of the Property for the purposes of calculating the maximum LTV ratio shall be the appraised value of the Property#.

#The HKMC reserves the right to re-verify the appraised value of the Property.
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85% MIP on Village House
with Maximum Loan Amount Up to HK$5 Million

Description: Insurance Eligibility Criteria for Floating Rate Mortgages up to HK$5 million with Loan-to-Value ratio above 60% up to and including 85% and secured on completed private residential properties.

Note: With effect from 11 June 2011, the MIP will not be available to applicants whose principal income is not derived from Hong Kong
The Insurance Eligibility Criteria are summarised below:
Product typeFloating Rate Mortgages
(Note: Not applicable to Fixed Adjustable Rate Mortgages)
Maximum property valueHK$6,000,000

(Pursuant to the purchase price of the Property as stated in the sale and purchase agreement. For refinancing mortgages, the property value shall be the appraised value of the Property, if applicable.)
Maximum loan amount at origination$5,000,000

Only fully amortising mortgage Loans are eligible for Cover.

Mortgage loans with balloon payments, payment holidays and Deferred Principal Repayment Loans are not eligible for cover.
Determination of Loan-to-value("LTV") ratio:85%(may exceed 85% to the extent the Premium is financed by the mortgage loan)

The purchase price must exclude the value of any incentives offered by the relevant vendor or any other third party to the Borrower / Mortgagor in relation to the purchase of the Property.
Minimum LTV Threshold60%
Calculation of Debt-to-Income(DTI) ratio:
  • Maximum debt-to-income ratio at origination
50%
Maximum original term to maturity40 years
Maximum sum of "remaining term to maturity" and "age of Property" at origination and throughout the life of the mortgage loan55 years(subject to case by case approval where it exceeds 50 years)
Borrower typePersonal customers
Type of propertyThe property must be a residential properties located in Hong Kong ("Tso", "Tong" properties or Small Village Houses located in the New Territories with alienation restriction sale are not eligible)

Properties under construction are not eligible for coverage.
Owner occupancyAt least one of the income generating Borrower(s)/ Mortgagor(s) / Guarantor(s)* must physically live in the Property and use the Property as his / her primary residence while Cover is maintained, or until such requirement is waived at the discretion of the HKMC and its reinsurers.

The occupying Borrower / Mortgagor / Guarantor’s* income must not be less than the sum of monthly mortgage instalment payment and his/her other monthly debt obligations.

*Guarantor must be the immediate family member or fiance of Borrower or Mortgagor.
RefinancingEligible for refinancing and cast-out refinancing

(for refinanced loans which involve a cash-out element, the application will be considered on a case-by-case basis)
Premium ratesSingle and Annual premium payment option, no premium refund arrangement for the following products:

  • 1. Loan tenor exceeds 30 years; or
  • 2. Under Annual premium payment option.
Down paymentThe down payment for the purchase of the Property must be paid from the Borrower / Mortgagor’s own assets and must not have been financed by way of any loan or banking / credit facility.
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Some tips for you when applying 90% residential mortgage:


  • Requires over 1 month for approval
  • The Hong Kong Mortgage Corporation Ltd has to approve every 90% mortgage case. From the guideline, it claims only needs 10 days for approval, however, it may take longer time for preparing the document. Some of the banks may take 2 weeks for approval. In case the mortgage could not be approved on time, the banks will suggest 1.5 to 2 months for the official transaction date.


  • 3 ways of settling the MIP cost

    • One off payment
    • Annual payment
    • The bank will pay for the insurance first, then the applicant returns the loan by installment

    Option a will be the cheapest way to the settle insurance cost and option c will increase the rate since the applicant has to bear the interest as well.


PREMIUM RATE SHEET
(LTV Threshold at 70%)
OWNER-OCCUPIED RESIDENTIAL PROPERTY LOANS
FLOATING RATE
Mortgage Insurance Premium
Mortgage Type Insurance coverage according to Loan-tovalue Ratio (LTV) Loan Tenor (Years) Single Premium Payment
(% of the Original Principal Balance)
Annual Premium Payment
First Year
(% of the Original Principal Balance)
Renewal
(% of the Original Principal Balance)
FLOATING RATE70%
up to
75%
LTV
100.55N/AN/A
150.60
200.65
250.70
300.75
350.80
400.85
70%
up to
80%
LTV
101.000.500.24
151.150.600.24
201.400.700.24
251.500.750.24
301.650.850.24
351.750.950.24
401.851.050.24
70%
up to
85%
LTV
101.550.700.45
151.800.800.45
202.150.900.45
252.301.000.45
302.401.100.45
352.501.200.45
402.601.300.45
70%
up to
90%
LTV
102.150.900.63
152.501.090.63
202.981.280.63
253.351.460.63
303.551.650.63
353.751.850.63
403.952.050.63
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(LTV Threshold at 70%)
OWNER-OCCUPIED RESIDENTIAL PROPERTY LOANS
FIXED ADJUSTABLE RATE FOR FARM*
Mortgage Insurance Premium
Mortgage Type Insurance coverage according to Loan-tovalue Ratio (LTV) Loan Tenor (Years) Single Premium Payment
(% of the Original Principal Balance)
Annual Premium Payment
First Year
(% of the Original Principal Balance)
Renewal
(% of the Original Principal Balance)
FIXED ADJUSTABLE RATE for FARM*70%
up to
75%
LTV
100.53N/AN/A
150.58
200.63
250.68
300.73
350.77
400.82
70%
up to
80%
LTV
100.950.450.24
151.100.550.24
201.350.650.24
251.450.700.24
301.550.800.24
351.650.850.24
401.750.950.24
70%
up to
85%
LTV
101.400.650.40
151.700.750.40
201.950.850.40
252.050.950.40
302.201.050.40
352.301.150.40
402.401.250.40
70%
up to
90%
LTV
102.010.850.59
152.341.030.59
202.841.200.59
253.181.310.59
303.381.500.59
353.581.700.59
403.781.900.59
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*i.e. Fixed Adjustable Rate Mortgages – Product under the FARM Programme announced by the HKMC (Not applicable to Village House and/or Cash-out refinancing mortgages)

(LTV Threshold at 60%)
OWNER-OCCUPIED RESIDENTIAL PROPERTY LOANS
Mortgage Insurance Premium
Mortgage Type Insurance coverage according to Loan-tovalue Ratio (LTV) Loan Tenor (Years) Single Premium Payment
(% of the Original Principal Balance)
Annual Premium Payment
First Year
(% of the Original Principal Balance)
Renewal
(% of the Original Principal Balance)
FLOATING RATE60%
up to
80%
LTV
101.150.580.28
151.500.790.28
201.850.930.28
252.001.000.28
302.151.110.28
352.281.240.28
402.381.360.28
60%
up to
85%
LTV
101.800.820.53
152.281.020.53
202.681.130.53
252.951.290.53
303.051.400.53
353.201.540.53
403.351.680.53
60%
up to
90%
LTV
102.601.090.77
153.180.800.77
203.750.900.77
254.101.000.77
304.351.100.77
354.581.200.77
404.701.300.77
FIXED ADJUSTABLE RATE for FARM*60%
up to
80%
LTV
101.100.530.28
151.440.720.28
201.790.870.28
251.940.940.28
302.021.050.28
352.151.110.28
402.261.230.28
60%
up to
85%
LTV
101.630.760.47
152.160.960.47
202.441.070.47
252.631.220.47
302.801.340.47
352.951.480.47
403.101.620.47
60%
up to
90%
LTV
102.441.040.72
152.981.320.72
203.581.520.72
253.901.610.72
304.151.850.72
354.382.080.72
404.502.270.72
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*i.e. Fixed Adjustable Rate Mortgages – Product under the FARM Programme announced by the HKMC (Not applicable to Village House and/or Cash-out refinancing mortgages)

List of Participating Banks offering MIP:

  • Bank of China (Hong Kong) Limited
  • Bank of Communications, Hong Kong Branch
  • China Construction Bank (Asia) Corporation Limited
  • China Construction Bank (Asia) Finance Limited
  • Chiyu Banking Corporation Limited
  • Chong Hing Bank Limited
  • Citibank (Hong Kong) Limited
  • CITIC Bank International Limited
  • Dah Sing Bank Limited
  • DBS Bank (Hong Kong)
  • Fubon Bank (Hong Kong) Limited
  • Hang Seng Bank Limited
  • Inchroy Credit Corporation Ltd
  • Industrial and Commercial Bank of China (Asia) Ltd
  • MEVAS Bank Limited
  • Nanyang Commercial Bank Limited
  • Public Bank (Hong Kong) Limited
  • Shanghai Commercial Bank Limited
  • Standard Chartered Bank (Hong Kong) Limited
  • The Bank of East Asia, Limited
  • The Hongkong and Shanghai Banking Corporation Ltd.
  • The Royal Bank of Scotland N.V.
  • Wing Hang Bank Limited
  • Wing Lung Bank Limited

Source: The Hong Kong Mortgage Corporation Ltd. For details, please login to www.hkmc.com.hk.