What is Mortgage Stress-Test?

30-11-2016

What is Mortgage Stress-Test?

Hong Kong Monetary Authority has issued prudential measures for residential mortgage lending in August 2010 imposing limit on the debt servicing ratios (“DSRs”) of mortgage applicants to 50% instead of the then current range of 50% to 60%. In addition, banks should stress-test mortgage applicants’ repayment ability, assuming an increase in mortgage rates by 3%, the stressed DSR must not exceed 60%.

One has to watch out that under the prudent measures, if the relevant mortgage loan is subject to different mortgage rates or has a choice of two mortgage rates, the DSR is calculated using the higher interest rate.

Further, in calculating the monthly repayment liability if an applicant, second mortgage repayment has to be aggregated at the higher of the applicable interest rate if the second mortgage offers staggered interest rates. The DSR will be calculated using the higher interest rate as well.

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