Table of Contents
Introduction to HIBOR Mortgage
"Interbank offered rate mortgage" is a floating rate mortgage loan based on the interbank offered rate (such as HIBOR, LIBOR, etc.). It is suitable for borrowers who are familiar with the financial market and can withstand interest rate fluctuations. It has obvious advantages in a low-interest environment, but they need to carefully assess their own risk tolerance. When choosing, you should give priority to products with capped interest rates and pay close attention to market trends.
1. Core Concepts
- Interbank Offered Rate: Refers to the interest rate for short-term loans between banks (such as HIBOR in Hong Kong and LIBOR in London), which reflects the market supply and demand of funds and usually changes daily.
- mortgage: That is, mortgage loan, which is common in home purchase loans. The borrower mortgages the property to a financial institution to obtain funds.
HIBOR mortgageThat is, the loan interest rate is linked to the "interbank offered rate", which is usually calculated as "interbank offered rate + fixed spread" (such as HIBOR + 1.5%), and the interest rate is adjusted with market fluctuations.
2. Operational Mechanism
- Interest rate structure:
Monthly repayment rate = current interbank offered rate (such as 1-month HIBOR) + bank fixed interest rate spread
For example: If HIBOR is 2% and the interest rate spread is 1.5%, the actual interest rate is 3.5%. - Adjust frequency: Usually adjusted monthly or quarterly based on the latest interest rate.
- Capping mechanism (Cap)：Some products have an interest rate cap (such as a maximum of no more than the P-by-interest rate) to avoid excessive repayments when market interest rates soar.
3. Main features
advantage
- High interest rate transparency: The interbank lending rate data is public and cannot be easily manipulated unilaterally by banks.
- Save money in a low interest rate environment: If market interest rates fall (such as during a period of economic easing), interest payments may be lower than a fixed-rate mortgage.
- flexibility: Suitable for borrowers who hold properties for a short period of time or plan to repay the loan in advance.
shortcoming
- Interest rate fluctuation risk: When market funds are tight (such as during a financial crisis), interbank interest rates may rise sharply, leading to a sudden increase in repayment pressure.
- Complexity: It is necessary to pay attention to the trend of interbank interest rates, and a high level of ability to judge interest rate trends is required.
4. Applicable scenarios
- Hong Kong Market：H mortgage (HIBOR mortgage) is the mainstream product, accounting for about 80% of newly approved mortgages¹.
- Investors or high risk takers: Willing to bear interest rate fluctuations in exchange for potential low interest rate advantages.
- Short-term loan needs: Such as mortgage transfer and short-term transitional financing.
5. Comparison with other mortgages
| type | Base Rate | risk | Suitable for |
|---|---|---|---|
| HIBOR mortgage | HIBOR/LIBOR＋Spread | Interest rate fluctuations | Those who are familiar with the market and can bear the risk |
| Prime Rate Mortgage (P Mortgage) | Bank P rate - discount rate | Small fluctuations, but banks can adjust the P rate | Those who prefer stability |
| Fixed rate mortgage | Lock in a fixed interest rate (such as 3%) | No volatility risk, but higher interest rates in the early stages | Seeking repayment certainty |
6. Risk management advice
- Choose products with a "capped interest rate": Limit the maximum interest rate and avoid extreme situations.
- Pay attention to market trends: Such as the impact of central bank policies and economic data on the lending rate.
- Hedging tools：Can be combined with an interest rate option (Interest Rate Cap) or converted to a fixed rate.
7. Example
Assume a borrower in Hong Kong applies for an H mortgage:
- Loan interest rate：HIBOR (1 month)＋1.5%
- Current HIBOR：2% → Real interest rate:3.5%
- Capped interest rate：P is -2.25% (assuming P=5.25%, the capped interest rate is 3%)
- If HIBOR rises to 3%, the actual interest rate will be 4.5%, but due to the capping mechanism, the interest rate will only be calculated based on 3%.
¹ According to the Hong Kong Monetary Authority's 2023 data, H mortgages accounted for approximately 79% of newly approved mortgage loans.
