How low can they go?

I received interest rate fixing notices on two of my mortgages this week. The latest interest rates are 2.0900% and 1.9957%. Both are HIBOR linked mortgages and, yes, they do set them to four decimal places.

Over the last 18 months (approximately), the interest rates I have been paying on my mortgages have fallen from around 5% pa to below 2.5% with some, as mentioned above, now around the 2% pa level. To put this into context, the reduction in the interest bill on our total debt due to interest rates falling from 5% to 2.5% is the equivalent of more than three months total expenses. Put differently, the equivalent of three months living expenses is being added to our net worth on an annual basis because of the impact of falling interest rates.

There is expectation that the US Federal Reserve will make further cuts in interest rates. While we did not get the same reduction in interest rates here (HK rates are already lower than US rates and deposit rates are close to zero), any further cuts in US rates should put at least some downward pressure on the HK rates.

At the moment it is very difficult to fix interest rates for longer terms in Hong Kong (at least not without paying a huge premium). A pity. If I could lock in rates at or around 2% for the next few years, I would be a very happy borrower indeed.