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When purchasing new properties, developers or financial institutions often launch innovative mortgage schemes to attract buyers, such as "Progressive Mortgage"and"Developer second mortgage". These plans appear to lower the initial entry threshold to the market, but the potential risks need to be carefully evaluated. The following analyzes the operating modes, advantages and disadvantages of the two and their applicable scenarios:
1. Progressive mortgage (incremental mortgage)
Operational Model
In the early stage of mortgage (such as the first 2-3 years), the repayment amount is low (even only interest), and gradually increases to normal level in the later stage. Some plans may be combined with a "Breathing Plan" to provide very low interest rates in the early stages and convert to market interest rates in the later stages.
advantage
✅ Reduce initial burden: Suitable for buyers who are short on funds in the short term but expect their income to grow (such as young families).
✅ Get on the bus faster: Low down payment combined with low initial payment lowers the entry threshold.
Risks and Disadvantages
⚠️ Later contributions soared: If income does not grow as expected, you may not be able to afford the high repayments in the later stages.
⚠️ Interest rate fluctuation risk: If the plan includes a floating interest rate, the pressure will be greater during the interest rate hike cycle.
⚠️ Difficulty in refinancing: If the property price drops or there is insufficient proof of income, you may not be able to transfer the mortgage to a traditional bank at a later stage.
Suitable for
- Confirm that your income will increase significantly in the future (such as promotion, transfer to a high-paying industry).
- Plan to hold the property for a short period of time (e.g., to invest and then resell after collecting rental income).
2. Second mortgage from developer (high ratio mortgage)
Operational Model
The buyer applies for a first mortgage from the bank (usually 60-70%), and then applies for a second mortgage from the developer (10-30%), and the total loan amount can reach 80-90%. Low interest rates may be offered in the initial stage, but the interest rate after the discount period is usually higher than the market (such as P+2% or above).
advantage
✅ Low down payment：The loan amount is high, suitable for buyers who do not have enough down payment but want to “borrow all”.
✅ Avoid stress testing：Some secondary mortgages are not included in the bank's stress test and the approval process is more relaxed.
Risks and Disadvantages
⚠️ High interest rate trap: After the preferential period, the interest rate may soar and the payment may increase dramatically (for example, for a loan of 5 million, the interest rate will increase from 2% to 6%, and the monthly payment will increase by more than 10,000 yuan).
⚠️ Double repayment pressure: The first and second mortgages need to be repaid at the same time, and the cash flow is fragile.
⚠️ Risk of falling property prices: If the market adjusts and the property becomes a negative asset, the second mortgage may require payment of the difference.
⚠️ Resale restrictions: Some contracts have a penalty interest period, and early repayment requires a high fee.
Suitable for
- Flexible cash flow in the short term (such as expected dividends, business income).
- I am extremely optimistic about the property market outlook and believe that appreciation can offset the interest costs.
Comprehensive analysis: Can you win?
Key considerations
- Income stability: If your occupational risk is high (such as self-employment or commission-based), be careful to prevent your contributions from getting out of control in the later stages.
- Interest rate trends: If we are in an interest rate hike cycle, the risks of high leverage plans will double.
- Property Market Expectations: If you are pessimistic about the future market, high-ratio mortgages are prone to negative assets.
- Escape door plan: Are sufficient reserves reserved to deal with emergencies (such as unemployment, interest rate hikes)?
Alternatives
- Traditional bank high-ratio mortgage: Although it needs to pass the stress test, the interest rate is low and stable.
- Family members support the first installment: Reduce the loan amount and reduce interest expenses.
- Delayed entry into the market: Accumulate more down payment and avoid excessive borrowing.
「Progressive Mortgage Frequently Asked Questions
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What is a Progressive Mortgage?
A progressive mortgage is a loan model where the repayment amount increases gradually. The monthly payment amount is low at the beginning and then gradually increases. It is suitable for borrowers who expect their income to rise steadily (such as young working people).
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Who is suitable to apply?
People whose income is initially low but has the potential for growth in the future (such as those just entering the workplace).
Those who plan to reduce repayment pressure in the short term but can afford the increase in repayments in the later period. -
Advantages and disadvantages?
advantage：The repayment pressure is small in the early stage and can be adjusted according to income growth.
shortcoming: The amount of contributions may increase significantly in the later stages. If income does not meet expectations, there may be a risk of defaulting on payments. -
How is the interest rate calculated?
Most of them adopt "floating interest rates" which are linked to market interest rates. Later increases in interest rates may further push up the repayment amount.
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Can I repay early or refinance?
It depends on the terms of the contract. Some banks allow early repayment, but may charge a handling fee; refinancing requires meeting the conditions of the new lending institution.
「Developer's second mortgage Frequently Asked Questions
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What is a developer’s second mortgage?
It means that when buying a house, if the bank's first mortgage loan amount is insufficient, the real estate developer will provide an additional second mortgage loan to make up for the buyer's down payment gap.
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What is the difference between it and the second mortgage of a bank?
Developer second mortgage: Interest rates are usually higher, there may be a favorable period (such as low interest rates in the first 2-3 years), and then a sharp increase in the later period.
Bank second mortgage: The interest rate is low but the approval is strict and requires passing the stress test. -
What are the application requirements?
Usually limited to purchasing properties from that developer.
Need to be reviewed by the developer (more relaxed than banks, but may require a higher down payment). -
What are the risks?
After the preferential period, interest rates soared and the payment burden increased.
If property prices fall, there may be a risk of negative equity due to a second mortgage.
Prepayment may incur penalty interest clauses. -
Do you need a lawyer?
Yes, the second mortgage involves legal documents and the relevant procedures need to be handled by a law firm.
Comprehensive comparison
| project | Progressive Mortgage | Developer second mortgage |
|---|---|---|
| Interest rate risk | Increased payment later + impact of floating interest rate | Interest rates rise sharply after the preferential period |
| Suitable for | Those with expected stable income growth | Those who have insufficient down payment or need low payment in the short term |
| flexibility | Can be combined with refinancing or early repayment | Tied to the developer's property, resale may be restricted |
Important Notice
- Be sure to read the terms carefully before signing, especially the interest rate adjustment mechanism and penalty interest rules.
- It is recommended to consult an independent financial advisor or lawyer to assess your personal repayment ability and risks.
- When the market fluctuates, second mortgages or progressive mortgages may increase financial pressure and require careful planning.
Conclusion: High-risk tools, use them within your means
The essence of "progressive mortgage" and "developer second mortgage" is "trading time for space", which is suitable forRevenue growth is clearandStrong risk resistanceBuyers. If you choose this option, be sure to:
- Calculate the worst-case payment after the promotional period in detail.
- Set aside at least 12 months of emergency reserves.
- Avoid borrowing the full amount to leave a buffer for falling property prices.
suggestion: Consult an independent financial advisor before signing a contract to compare the long-term costs of different plans. Do not ignore the long-term debt risks due to the "low down payment incentive."
