Switching banks can be expensive in mortgage wars
MORTGAGE holders looking to take advantage of the ‘mortgage wars’ now raging in Hong Kong, where some banks are offering as much as a 1.25 per cent discount on the standard 10.25 per cent rate, might be forgiven if they get the feeling this discount was not meant for them.
A survey of banks has revealed that the lowest rates are reserved for people purchasing new properties only.
If you already hold a mortgage and you want to jump to another bank offering the discount level, you will probably not get as much of a reduction as someone buying a brand new property, according to banks.
A spokesman for Liu Chong Hing Bank, for instance, said someone wanting to switch could get their lowest 9.25 per cent rate.
When pressed, the bank said that while existing homeowners could get a cheaper rate, ‘below 10 per cent’, it was unlikely that they would qualify for the 9.25 per cent discounted level.
Getting that discount would depend upon the age of the property, the income of the person, the length of time the person had lived in the house, their repayment history and the like, the bank said.
If you already have a mortgage with a bank that is offering a discount, do not be surprised if you fail to qualify for that discount.
Hang Seng Bank frowns on customers renegotiating their existing loans.
Pau Sze-kin, head of the bank’s mortgage department, said customers renegotiating their existing mortgage could be an unhealthy development for the banking industry.
Many banks share his concerns.
ABN Amro Bank, one of the most aggressive lending institutions in the territory, is not keen on allowing its existing customers to renegotiate their mortgage rate.
A spokesman for the bank said the practice was not being encouraged and they would only consider it on a ‘case by case basis.’ Any homeowners wanting to quit their bank within the first year of their mortgage face additional hurdles.
They will have to pay a standard penalty of as much as $50,000 or 3 per cent of the outstanding balance on a mortgage.
Some banks will even charge a penalty in the second year for early repayment amounting to 1 per cent of the balance of the mortgage.
A number of banks surveyed by Sunday Money advised people to wait until the second year of their mortgage before bank-hopping.
Even if you have been paying off your mortgage for a number of years, there are a host of fees that can cast a shadow on the discounted rate.
Most banks said there would be a $2,000 to $3,000 charge for what is called a reassignment fee which basically allows the homeowner to quit their existing mortgage for another bank.
Far more onerous though is the cost of a lawyer to draw up a new mortgage. This can amount to about $20,000 on a house valued at $2 million – it increases as the price of the property goes up.
A flat valued at $5 million could pay as high as another $50,000, one banker said.
Besides financial penalties, some property agents said that since the average Hong Kong flat owner paid off their mortgage in seven to 10 years, and sold their flat every four years, switching mortgages was not worth the hassle.
Banks, however, argue it makes sense for the end-user with a 20 to 25-year mortgage to shop around for the discounted rate.
According to a spokesman for ABN Amro Bank, a 20-year mortgage at 10.25 per cent amounts to $982 per $100,000 of property value.
The 9 per cent mortgage rate would reduce that monthly payment to $900.
A mortgage department official with Liu Chong Hing Bank said, while existing mortgage holders might not be able to get the 9.25 per cent mortgage rate, at 9.50 per cent they could save almost $1,000 per month on their current 10.25 per cent mortgage.
Over the course of four years that would amount to $47,520.
‘My advice to customers seeking cheaper mortgages,’ a spokesman for one bank said, ‘is if your mortgage is for more than 10 years, change banks.
‘But if you are not going to hold your property for more than 10 years or if you are just in the market for speculation, then save your energy.’