L3 Financing Real Estate to Students

07 1493107 1374625 1265242 1171576 m ortgage r ates

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Unformatted text preview: ifferent banks in Hong Kong on February 20, 2006. Hang Seng Bank Citic Ka-Wah3 Liu Chong Hing4 Mortgage Interest Rate P – 2.75% Fixed Rate Plan: 5% for the first half year, P–2% to P – 2.5% thereafter General Plan: P – 2% to P– 2.25% Privileged Plan: P–2.5% General Plan: P–2.25% Special Plan (置息按): P–2% P–1.75% to P–2.4% adjusted to P–2% to P–2.5% P–2.25% to P–2.5% adjusted to P–2.3% to P–2.65% P–2.25% to P–2.6% General Customers: P–2.5% to 2.6% Privileged Customers (loan less than HK$1.5m): P for the first 3 years, P-2.5% thereafter Privileged Customers (loan less than HK$1.5m): P for the first 3 years, P2.625% thereafter P-2% to P-2.5% P-2.125% to P-2.5% P-2% to P-2.5% P-2.25% Cash Rebate 0 0.3% Actual Mortgage Interest Rate 5% 5% (5.5% to 6% thereafter) 5.75% to 6% 5.5% 5.5% 5.75% 5.6% to 6.25% adjusted to 5.5% to 6% 5.5% to 5.75% adjusted to 5.35% to 5.7% 5.4% to 5.75% 5.4% 8% for first 3 years, 5.5% thereafter 8% for first 3 years, 5.375% thereafter 5.5% to 6% 5.5% to 5.875% 5.5% to 6% 5.75% Prepayment Penalty Period (yrs) 3 3 0.4% 0.4% 0.3% 0.1% 0.4% 3 3 3 3 0.4% Dah Sang 0.3% 0.6% 8% 3 Bank of Communication 3 8.3% 3 Bank of East Asia Wing Lung Standard & Chartered DBS 0.4% 0.35% 0.3 0.4% 3 Discussion How would you compare the mortgage loan between HSBC and Bank of China? Assume that the price of property is HK$2 million, 70% lending, with mortgage term of 20 years. The risk of HSBC mortgage is that its prime rate may increase to the same level as all other banks. Comparison Mortgage Rate Actual Mortgage Rate Cash Rebate Monthly Payment first half-year Monthly Payment after first half-year Total Interest Payment Total Mortgage Payment HSBC P–2.75 5% (Prime is 7.75%) 0 HK$9,239 (total HK$55,434) HK$9,239 (assume P doesn’t change.) HK$817,451 (HK$862,371 if P goes up to 8%) HK$2,217,451 (HK$2,262,371 if P goes up to 8) Bank of 5% for the first half year, P– 2% to P – 2.5% thereafter 6% (Prime is 8%, based on P–2%) 0.3% HK$9,239 (total HK$55,434) HK$10,030 (P remains 8%) HK$1,000,223 HK$2,400,223 Mortgage Interest Rates in Hong Kong There are two prime interest rates in Hong Kong, one set by HSBC and Hang Seng Bank and one by all other banks such as Bank of East Asia and Standard & Chartered. For example, in February 2006, the current prime rate of HSBC is 7.75% and that of others is 8%. Prime rates in Hong Kong tend to follow the Federal Funds rate in the United States. 01 to June 29 04 (period of rate reduction) -5.5% -4.5% -4.74% June 30 04 to January 27 06 (period of rate increase) +3.25% +2.92% +2.6% Interest rates U.S. Fed Funds Rate Prime Rates in Hong Kong Saving rates for HK dollar Discussion Current issues with the interest rate practices by banks in Hong Kong? The main recent charges made by the Hong Kong Consumer Council in February 2006 regarding interest rate policies of banks in Hong Kong are as follows: Discussion During the period of increasing interest rate, most banks increase their prime rates effective 1...
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This note was uploaded on 09/06/2010 for the course FINA FINA0805 taught by Professor Tse during the Spring '09 term at HKU.

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