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The Mortgage Insurance Plan is a financial mechanism that is an important tool for homebuyers to purchase a home with a lower down payment. It helps homebuyers obtain home loans from banks or financial institutions even when the down payment ratio is low, while reducing the risk of the lender. It is especially suitable for buyers who are short of funds in the short term but have stable income. However, you need to be aware of the long-term financial burden and evaluate whether it is cost-effective based on your own situation. Before applying, it is recommended to consult a professional or banking institution to fully understand the terms and costs. Here are the detailed instructions:
What is a mortgage insurance program?
The core of the mortgage insurance program is to provide protection for banks through insurance companies. When home buyers need to apply for a higher loan amount (for example, more than 60-70% of the house price) due to insufficient down payment, banks usually require them to purchase mortgage insurance. The beneficiary of this insurance is the bank. If the borrower is unable to repay the loan in the future and defaults, the insurance company will compensate the bank for part of the losses.
Program Background and Operating Organization
Released: March 1999
Current operating organization: Hong Kong Mortgage Insurance Company Limited (HKMC Insurance Company), which took over the business from May 1, 2018.
Parent company relationship: The HKMC is a subsidiary of the Hong Kong Mortgage Corporation (wholly owned by the Hong Kong Government through the Exchange Fund).
Purpose of the Program
Promote citizens to buy homes and settle down (reduce down payment pressure).
Maintain the stability of the banking industry (sharing the risks of high-ratio mortgages).
To promote the development of the local bond and retirement planning markets.
Key operating mechanisms
The upper limit of the mortgage ratio has been exceeded:
- The general bank mortgage ratio is subject to the regulations of the Monetary Authority of Singapore (usually below 60%).
- Through this plan, the bank can provide up to 80% mortgage (down payment only requires 20%);
- Special circumstances: Those who meet the conditions (see below) can obtain a mortgage loan of up to 90% (down payment of 10%).
Insurance coverage:
- Mortgage insurance companies insure more than 70% of bank loans, reducing bank risks.
Uses and benefits of mortgage insurance
- Lower down payment requirements
Traditional loans usually require home buyers to pay 20-30% of the house price as a down payment, but through mortgage insurance, the down payment can be reduced to 5-10% (the specific ratio depends on regional policies), lowering the threshold for home purchase. - Protecting Banks from Risk
Loans with high loan ratios are riskier for banks. Insurance shares the banks' potential bad debt losses, making them more willing to approve loans with high loan ratios. - Promote the circulation of real estate market
Help buyers with insufficient down payment funds (such as young people or first-time homebuyers) enter the market and increase transaction volume. - Flexible loan terms
Some plans allow the insurance premium to be included in the total loan amount and paid in installments, reducing the initial financial pressure on home buyers.
Common types of mortgage insurance
- Hong Kong Mortgage Insurance Programme (HKMC)
Provided by the Hong Kong Mortgage Corporation (HKMC), it allows a minimum down payment of 10% to purchase a home (applicable to properties priced within HK$10 million), and the maximum loan amount is up to 90%. - PMI (Private Mortgage Insurance) in the United States
Applicable to conventional loans with a down payment of less than 20%, the premium is paid by the borrower until the loan balance is reduced to 78% of the house price, which can be canceled. - CMHC Insurance in Canada
Provided by government agencies, you can buy a house with a down payment as low as 5%, but you need to pay a one-time or installment insurance premium.
Fees and costs
- Premium calculation: Usually charged as a percentage of the loan amount (e.g. 1-5%), and is affected by factors such as the loan amount and repayment period.
- Payment method: It can be divided into a one-time payment or instalments (included in the monthly repayment amount).
- Surrender mechanism: Some areas allow the cancellation of insurance (such as PMI in the United States) after house prices rise or loan balances decrease.
Precautions
- Long-term cost increases
The premium will increase the overall cost of the loan, and you need to weigh the pros and cons of a lower down payment against the additional expenses. - Eligibility Restrictions
Usually, you need to meet income, credit score and property type requirements (for example, only owner-occupied homes are applicable). - Regional differences
Mortgage insurance policies in different countries or regions vary greatly, so you need to understand the local regulations in detail.
Application conditions and restrictions
Basic scope of application:
- Applicable to owner-occupied properties and must pass the bank stress test.
Additional conditions for 90% mortgage:
Property price ceiling:
The current property price cap is HK$10 million (2023 standard).
Applicant Qualifications:
All mortgagors do not own any other residential properties in Hong Kong (first-time homebuyer status).
Applicants must be salaried individuals (excluding self-employed persons or those with irregular income).
Maximum loan amount:
The maximum loan amount is HK$9 million (applicable to properties priced at HK$10 million).
Potential risks:
- Mortgages with high loan amounts may increase long-term repayment pressure, so you need to carefully assess your income stability.
- When property prices fall, be aware of the risk of negative equity.
FAQ
How to determine whether you are eligible for the "First Home Ownership" program?
The applicant must not own any residential property in Hong Kong at the time of application (overseas properties will not be affected).
Can those with non-fixed income apply?
90% mortgage is only available to people with fixed salary, but 80% mortgage is open to self-employed people (more stringent income proof is required).
Does the scheme apply to second-hand buildings?
Yes, it is applicable to both new and second-hand houses, but the age of the building may affect the approval.
Is the premium refundable?
If you repay the loan in advance, you can apply for a partial refund of the premium on a pro rata basis.
