facd

Business Administration Discipline
BUS3905
Managing Personal Finance

│ Week 8│
Long-Term Liabilities Management (2)

Lesson Intended Learning Outcomes
Upon completion of the lesson, you are expected to be able to:
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interpret the terms of mortgage loan financing purchase of properties compute the monthly mortgage loan payment and mortgage insurance premium compute the rental return on property investment

2

Selection Criteria of Mortgage Loan
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The following factors should be considered when choosing mortgage loan plan:
1. Interest Rate
2. Borrowing Period
3. Installment Loan Repayments
4. Cash Rebate

3

Interest Rate
In Hong Kong’s mortgage loan market, there are three different forms of borrowing rates:
1. Floating rate
2. HIBOR-based rate
3. Fixed floating (adjustable) rate

4

Borrowing Period
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The borrowing period can be adjusted to suit a borrower’s needs.
Normally, for mortgage on new flats, the borrowing period is not more than 30 years; and the borrowing period cannot exceed the retirement age of the borrower. In practice, the borrowing period plus the age of the property cannot exceed 45 years.

5

Installment Repayments
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The installment repayments of mortgage loans are usually made monthly. Some banks allow repayments on a bi-weekly basis to enable the borrowers to save interest.

6

Cash Rebate
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Some financial institutions provide borrowers with a cash rebate at the time of drawing out the mortgage loan This cash rebate is usually made in the form of a fixed sum or at a certain percentage of the borrowed amount

7

Cash Rebate
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This form of borrowing incentive is normally accompanied by a higher floating rate to compensate the costs to the banks.
The borrowers are often subject to a penalty charge for early pay-off of the loan within a time period.
This is to protect the bank in securing a stream of

References:  Education and Manpower Bureau, Hong Kong (2003)