To hibor or not to hibor?

Help, we are looking at mortgage options but dont know enough about the hibor option, does anyone know the benefits of taking this type of mortgage? We have been speaking to a mortgage referral company but wanted a clearer 'english' explanation, thanks for your help!

HIBOR is determined by trends in the local HK economy, and particularly by levels of activity in the HK property market (both commercial and residential). By contrast, HK$ prime (because of the currency peg) is greatly influenced by US$ Prime - and therefore by trends in the US economy.



Prime rate is generally high near the end of a US economic upswing and low at the end of a US recession or after a major negative event (such as 9/11). By contrast, the HIBOR rate depends how much HK$ cash is sloshing about in the HK banking system - and that is largely determined by the ratio of bank deposits to loans made by banks here at any one time. When the HK property market soars, savings will be withdrawn (to plough into property) and local commercial and residential mortgage lending will rise; and - as this sucks money out the the HK banking system - the interest rate at which banks lend HK$ to each other (HIBOR) will also rise.... money becomes scarcer, so people pay more to borrow it.



Nobody can predict with any measure of certainty which would be the better rate to follow on average over the term of your mortgage. It is a 50/50 bet. Otherwise, of course, banks themselves would borrow at Prime-linked rates and lend at HIBOR (or vice-versa) and make free money ("arbitrage", in the jargon).