Tuesday, February 27, 2007

Interest Rate War Intensifies

HSBC fired the first round in the latest battle for market share by mortgage lenders. Other banks have followed and prime based mortgages are now available at rates as low as prime - 3 per cent or prime -3.18 per cent. Most will also offer cash back of between 0.3% and 0.8% of the loan amount. This brings the effective rate for new mortgages down to around 4.85% (less cash back). In reality this only brings the prime based mortgages to a level similar to HIBOR based mortgages. We have also seen some reduction in HIBOR products with rates as low as HIBOR + 0.6% being offered.

Unfortunately, there is no immediate benefit for me. The new rates only apply to new loans. Given that most of my mortgages are already on HIBOR linked pricing or are still in the penalty period, there is not enough in it to justify refinancing.

Note: confusingly HSBC, Hang Seng and BOCHK have set their prime rate at 7.75% while all other banks are at 8.0%. This is an important point to bear in mind when comparing offers. Also, if the two best offers work out the same, I would take the one from the bank with the lower prime rate over the one from the bank with the higher prime rate.

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