Annex A

MORTGAGE INTEREST SUBSIDY SCHEME

TERMS AND CONDITIONS

July 2007

THE GOVERNMENT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION

INDEX

PAGE NO.CLAUSE NO. I. DEFINITIONS 1 II. OBJECTIVE 1. Purpose 4 2. Minimum Qualifying Service 5 3. Priority System 5 III. ELIGIBILITY CRITERIA 1. Application Criteria 5 2. Double Benefits Rule 6 3. Property Criteria 9 4. Ownership Criteria 9 5. Mortgage Criteria 10 6. Live-in Requirement 10 IV. INTEREST SUBSIDY 1. Mortgage Loan 11 2. The Loan 11 3. Applicable Interest Rate 11 4. The Amount of Interest Subsidy 13 5. Date on which Interest Subsidy Becomes Payable 14 V. THE PERIOD OF ENTITLEMENT 1. Entitlement Period 14 2. Previous Receipt of a Housing Subsidy 14 3. Married Couples 15 4. Break in Employment 15 VI. PAYMENT OF INTEREST SUBSIDY 16 VII. EMPLOYEE’S OBLIGATIONS DURING THE PERIOD THAT

INTEREST SUBSIDY IS PAYABLE 16

VIII. CHANGES IN THE EMPLOYEE’S CIRCUMSTANCES 1. Disposal of Property 17 2. Change in Repayment Period 18 3. Change in Marital Status 18 4. Early Partial Repayment 19 5. Additional Facilities 19 6. Change to Title of Property 19 7. Cessation of Ownership or Mortgage 20 IX. CESSATION AND SUSPENSION OF INTEREST SUBSIDY 1. Cessation of Interest Subsidy 20 2. Suspension of Interest Subsidy Entitlement 20 X. APPLICATION PROCEDURE 1. Circular 21 2. Approval-in-Principle and Application 21 3. Documents to be Submitted 22 XI. AMENDMENTS AND REGULATIONS 22 XII. AUTHORITY AND DISCRETION OF THE PERMANENT SECRETARY OR

THE DIRECTOR 22

XIII. DISQUALIFICATION, ETC. 23 XIV. NOTICE 23 XV. TAX ON INTEREST SUBSIDY 24 XVI. WAIVER 24 XVII. LAWS OF HONG KONG 24

SCHEDULE NO. I. EXAMPLES OF PUBLICLY-FUNDED ORGANIZATIONS 25 II. EDUCATION BUREAU - SUBVENTED ORGANIZATION 26 III. SUBVENTED SERVICE UNITS 27

IV. DEPARTMENT OF HEALTH - SUBVENTED ORGANIZATIONS 28 V. SUBVENTED HEALTH SERVICE UNIT 29

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I. DEFINITIONS

1. In these terms and conditions, the following words shall have the following meaning unless the context otherwise requires :-

“Appraised Value”

means the price of the property as stipulated in the sale and purchase agreement, or the assignment, or any valuation report or any other document which is satisfactory to the Permanent Secretary or the Director having regard to the market price.

“Basic salary” means the basic salary payable to the Employee under such pay scale of his Subvented Organization which is recognized for subvention purposes, exclusive of allowances of any kind; except that the basic salary of the non-teaching staff working in a secondary school shall be as determined by the Permanent Secretary or the Director taking into consideration the pay scale of civil servants holding similar posts.

“Buy-or-Rent Option flat”

means a flat purchased under the Buy-or-Rent Option administered by the Hong Kong Housing Authority.

“Circular” means the circular or circular memorandum inviting applications under this Scheme issued by the Permanent Secretary or the Director from time to time.

“Director” means the Director of Social Welfare or the Director of Health or the Commissioner for Rehabilitation.

“Double Benefits Rule”

means the rule contained in Clause III.2 of these terms and conditions.

“Employee” means the full-time employee of any Subvented Organization who holds a post subvented by the Government with a subvention of 50% or more of the basic salary, or a full-time employee of a day creche subvented by the Social Welfare Department who holds a post in the day creche prior to 1 September 1994.

“Government” means the Government of the Hong Kong Special Administrative Region.

“Home Ownership Scheme flat”

means a flat purchased under the Home Ownership Scheme, Private Sector Participation Scheme, Middle Income Housing Project, Secondary Market Scheme and Tenants Purchase Scheme administered by the Hong Kong Housing Authority, and Urban Improvement Scheme (only Urban Improvement Scheme flats completed before March 1981), Sandwich Class Housing Scheme and Flat-For-Sale Scheme administered by the Hong Kong Housing Society in accordance with their respective terms and conditions.

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“Home

Purchase Loan Scheme flat”

means a flat purchased under the Home Purchase Loan Scheme administered by the Hong Kong Housing Authority, or the Home Starter Loan Scheme administered by the Hong Kong Housing Society or the Home Assistance Loan Scheme administered by the Hong Kong Housing Authority in accordance with their respective terms and conditions.

“Housing Benefits”

means any or all of the housing benefits, subsidies, allowance or loan set out in (i) to (xiii) of Clause III.2(a).

“Lending Institution”

means an authorized institution or money lender registered under the Banking Ordinance or the Money Lenders Ordinance.

“Permanent Secretary”

means the Permanent Secretary for Education.

“Publicly-Funded Organization”

means any present or future organization which receives or will receive public funds to finance housing benefits in cash or in kind for its employees, examples of such organizations are as set out in Schedule I hereto.

“Public rental housing flat”

means a rental flat provided by the Hong Kong Housing Authority, Hong Kong Housing Society and Hong Kong Settlers’ Housing Corporation in accordance with their respective terms and conditions.

“Qualifying Service”

in the case of a teacher in an aided school, means his continuous contributory service as defined in Rule 2 of the Grant Schools Provident Fund Rules (sub. leg; Cap 279) or Rule 2 of the Subsidized Schools Provident Fund Rules (sub. leg; Cap 279) as the case may be; and continuous service (if any) as an employee with his previous employer which was a per Caput Grant School on its terms and conditions on a full-time basis; and

in the case of a teacher in a per Caput Grant School, means continuous service as an employee with a per Caput Grant School on its terms and conditions on a full-time basis; and such amount (if any) of the Employee’s service with his previous employer which was a per Caput Grant School, or an aided school provided that he has not withdrawn his Provident Fund benefits; and

in the case of an Employee in a Social Welfare Department subvented day creche who holds a post therein prior to 1 September 1994, means continuous service as an employee with a Social Welfare Department subvented day creche on its terms and conditions on a full time basis; and

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in any other case, means continuous service as an employee

with a Subvented Organization on the Subvented Organization’s terms and conditions of employment on a full-time basis and holding a Government subvented post, and such amount (if any) of the Employee’s service with his previous employers which were Subvented Organizations as the Permanent Secretary or the Director may in his absolute discretion allow.

“Reference Lending Rate”

means the interest rate by reference to the average best lending rate of notes issuing banks at the end of the month. The Reference Lending Rate will be reviewed and adjusted when the difference between the updated rate (average best lending rate of notes issuing banks) and the prevailing rate is one percentage point or more, or when the prevailing rate has remained stationary for six months. Any adjustments will take effect from the first day of the following month.

“Sandwich Class Housing Loan Scheme flat”

means a flat purchased under the Sandwich Class Housing Loan Scheme administered by the Hong Kong Housing Society in accordance with its terms and conditions.

“Scheme” means the Mortgage Interest Subsidy Scheme.

“Spouse” means the spouse of any employee of the Subvented Organization, their marriage being recognized by the laws of Hong Kong.

“Subvented Organization”

means any of the following subvented organizations :-

(i) each primary school which receives subsidy from the Government under the terms of the Code of Aid for Primary Schools;

(ii) each secondary school which receives subsidy from the Government under the terms of the Code of Aid for Secondary Schools;

(iii) each special school which receives subsidy from the Government under the terms of the Code of Aid for Special Schools;

(iv) each per Caput Grant School;

(v) each Education Bureau - subvented organization as listed in Schedule II;

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(vi) each Social Welfare Department-subvented service unit which does not provide any housing benefits that are recognized for subvention purposes and which receives a recurrent subvention from the Government to cover their operating expenditure, Except aided nurseries/ creches which only receive not more than 5%

of Government subsidy and reimbursement of rent and rates and service units which are subvented for rent and rates only; a complete list of service units subvented by Social Welfare Department is obtainable from the Social Welfare Department;

(vii) each subvented service unit as listed in Schedule III;

(viii) each Department of Health - subvented organization as listed in Schedule IV; and

(ix) each subvented health service unit in Schedule V.

“Subvented sector”

means any of the following groups of Subvented Organizations :-

(i) group of Subvented Organizations as defined in sub-paragraphs (i), (ii), (iii), (iv) and (v) under the definition of “Subvented Organization”, called the Education Sector,

(ii) group of Subvented Organizations as defined in sub-paragraphs (vi) and (vii) under the definition of “Subvented Organization”, called the Welfare Sector,

(iii) group of Subvented Organizations as defined in sub-paragraph (viii) and (ix) under the definition of “Subvented Organization”, called the Health Sector.

2. (a) In these terms and conditions, the masculine gender shall include the feminine gender and vice versa. Words in the singular shall also include the plural.

(b) Headings are for ease of reference only and shall not define or limit any provisions hereof.

II. OBJECTIVE

1. Purpose

The objective of this Scheme is to provide Interest Subsidy to eligible Employees, subject to the Double Benefits Rule and all other terms and conditions herein contained.

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2. Minimum Qualifying Service

(a) The minimum Qualifying Service required for the purpose of application for Interest Subsidy shall be –

(i) for an Employee who receives a basic salary equivalent to Master Pay Scale Point 22 or above - minimum of 10 years continuous Qualifying Service; and

(ii) for an Employee who receives a basic salary below Master Pay Scale Point 22 - minimum of 20 years continuous Qualifying Service.

(b) Subject to sub-clause (c) below, for calculating the length of minimum Qualifying Service required for the purpose of application for Interest Subsidy, previous service in a different subvented sector will not be regarded as continuous service. Where a teacher recommences his employment in an aided school after withdrawing his Provident Fund benefits or after his contributor’s account of the Provident Fund is closed in accordance with the relevant rules made under the Education Ordinance (Cap 279), his previous service prior to recommencement will not be regarded as a continuous Qualifying Service.

(c) The Permanent Secretary or the Director shall have the absolute discretion to decide whether under special circumstances as from time to time be stipulated by the Government, an Employee’s previous service in a Subvented Organization shall be treated as continuous Qualifying Service.

(d) No pay study leave taken by the Employee upon approval by his Subvented Organization will not be counted towards the minimum Qualifying Service required under sub-clause (a) above.

3. Priority System

In view of the limited availability of funds, if in response to the Circular more applications are received from the Employees than there are funds available, priority of the Employees will be based on the length of the period by which their actual Qualifying Service is in excess of the minimum Qualifying Service required for the purpose of application for the Interest Subsidy. Where two or more staff have the same length of the period by which their actual Qualifying Service exceeds the minimum Qualifying Service, priority will be given to those older in age.

III. ELIGIBILITY CRITERIA

1. Application Criteria

In order for an application to be considered by the Government each of the

following criteria must be fulfilled :-

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(a) the Application must be submitted within the time limit for submission

specified in the Circular; and

(b) the Employee must be a permanent full-time employee of a Subvented Organization; and

(c) the Employee must have completed the minimum years of Qualifying Service as set out in Clause II.2(a); and

(d) the Property in question must fulfil the property criteria referred to below and the interest of the Employee in the Property must fulfil the ownership criteria referred to below; and

(e) the type of mortgage taken or to be taken over the Property must be one of the types listed below; and

(f) the Employee must not be disqualified as a result of the Double Benefits Rule; and

(g) the Employee must not have received any Interest Subsidy under this Scheme before, save in the case as provided under Clause V.4(a); and

(h) the spouse of the Employee must not have received any Interest Subsidy under the Scheme before, save in the case where his spouse has received the Interest Subsidy and has subsequently ceased to be entitled thereto in the circumstances specified in Clause IX.1(a), (b) or (c).

For the purposes of sub-clauses (g) and (h), an Employee or his spouse shall be deemed to have received Interest Subsidy under the Scheme on the effective date of joining the Scheme specified in the approval of his Application.

2. Double Benefits Rule

For definitions of “Publicly-Funded Organizations”, “Buy-or-Rent Option flat”, “Home Ownership Scheme flat”, “Home Purchase Loan Scheme flat” and “Sandwich Class Housing Loan Scheme flat”, the Employee should refer to Clause I.1.

(a) Subject to sub-clause (c) below, the Employee will not be eligible to apply for Interest Subsidy under this Scheme if :-

(i) he or his spouse is receiving any housing benefits in cash or in kind, or has been granted a housing loan under the Government’s Housing Loan Scheme or any housing loan scheme administered by any Publicly-Funded Organization (collectively “the Housing Subsidy”) under his/his spouse’s terms of employment with the Government, or any Publicly-Funded Organization; or

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(ii) he or his spouse has ceased to be eligible for whatever reason for housing benefits in cash or in kind under his/his spouse’s terms of employment with the Government or any Publicly-Funded Organization; or

(iii) he or his spouse has taken a legal title through accepting the first assignment of a lease to the flat and land which belonged at some time to a Local Officers’ Co-operative Building Society to which a government loan has been granted, or a Local Officers’ Government Built Housing Scheme, and of which society or scheme he or his spouse was a member or an underlessee immediately prior to such assignment (Except where he or his spouse became a member of such a society or an underlessee of such a scheme through beneficial succession, or has inherited the flat after the first assignment as aforesaid and has in either case obtained exemption from living in such a flat); or

(iv)

he or his spouse is an ex-member of a Local Officers’ Co-operative Building Society or a Local Officers’ Government Built Housing Scheme and has voted for dissolution of the Society or Scheme for the purpose of transfer of title and he or his spouse revokes the decision; or

(v) he or his spouse is a member of a Local Officers’ Co-operative Building Society to which a government loan has been granted or an underlessee of a Local Officers’ Government Built Housing Scheme (Except where he or his spouse became a member of such a society or an underlessee of such a scheme through beneficial succession and has in either case obtained exemption from living in such a flat); or

(vi) he or his spouse is the tenant or an authorised occupant of a public rental housing flat; or

(vii) he or his spouse is the registered owner of a Buy-or-Rent Option flat or a Home Ownership Scheme flat which is still subject to re-sale restriction and the payment of a land premium (except that the Employee may apply for Interest Subsidy in respect of the said flat which complies with the ownership criteria under Clause III.4 below); or

(viii) he or his spouse is the authorised occupant of a Buy-or-Rent Option flat or a Home Ownership Scheme flat which is still subject to re-sale restriction and the payment of a land premium; or

(ix) he or his spouse is the recipient of a loan or a monthly subsidy for purchasing a Home Purchase Loan Scheme flat (except that the

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Employee may apply for Interest Subsidy in respect of the said flat which complies with the ownership criteria under Clause III.4 below); or

(x) he or his spouse is the crucial member of a family in receipt of a loan or monthly subsidy for purchasing a Home Purchase Loan Scheme flat; or

(xi) he or his spouse is the recipient of a loan for purchasing a Sandwich Class Housing Loan Scheme flat (except that the Employee may apply for Interest Subsidy in respect of the said flat which complies with the ownership criteria under Clause III.4 below); or

(xii) he or his spouse is the crucial member of a family in receipt of a loan for purchasing a Sandwich Class Housing Loan Scheme flat; or

(xiii) his spouse is in receipt of any form of housing benefits in cash or in kind under her terms of employment with an employer other than the Government or Publicly-Funded Organization.

(b) The following provisions are for the purpose of removing doubt under sub-clause (a) :-

(i) whether the Employee or his spouse is receiving or has received any of the benefits referred to in (i) to (xii) of sub-clause (a) shall be determined by the prevailing provisions governing each of the schemes at the time when the Employee submits his application hereunder or on the basis of the Employee’s declaration in the case of (xiii) of sub-clause (a);

(ii) If the Employee and his spouse are both employees of the same or different Subvented Organization, then only one of them is entitled to Interest Subsidy; and

(iii) the purpose of this Double Benefits Rule is to ensure that the Employee and his spouse will not both receive Housing Benefits.

(c) Notwithstanding the Double Benefits Rule, an Employee who intends to relinquish any of the benefits under (i) (except a housing loan granted under the Government’s Housing Loan Scheme or any housing loan scheme administered by any Publicly-Funded Organization which cannot be relinquished), (v), (vi), (vii), (viii), (ix), (x), (xi), (xii) and (xiii) of sub-clause (a) shall be eligible to apply for Interest Subsidy under this Scheme. Where appropriate, his Entitlement Period will be prorated according to Clause V.2.

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3. Property Criteria

For definitions of “Buy-or-Rent Option flat”, “Home Ownership Scheme flat”, “Home Purchase Loan Scheme flat” and "Sandwich Class Housing Loan Scheme flat", the Employee should refer to Clause I.1.

An Employee may apply for Interest Subsidy :-

(a) to purchase any residential landed property (including car parks, if any) in Hong Kong, any Buy-or-Rent Option flat, any Home Ownership Scheme flat, any Home Purchase Loan Scheme flat or any Sandwich Class Housing Loan Scheme flat (whether the same is completed or uncompleted at the time of the purchase), provided that he is an approved purchaser under the schemes concerned; or

(b) to finance the residential landed property (including car parks, if any) in Hong Kong, any Buy-or-Rent Option flat, any Home Ownership Scheme flat, any Home Purchase Loan Scheme flat or any Sandwich Class Housing Loan Scheme flat which he has previously acquired and which is mortgaged (whether the same is completed or uncompleted at the time of the Application), provided that he is an approved purchaser under the schemes concerned.

The property which is the subject of Interest Subsidy shall be referred to as “the Property”.

4. Ownership Criteria

In order to be eligible to receive an Interest Subsidy the Employee must be either :-

(a) the sole owner or prospective sole owner of the Property; or (b) the co-owner or prospective co-owner of the Property with his spouse

(whether as joint tenants or tenants-in-common); or

(c) the co-owner or prospective co-owner of the Property (whether as joint tenants or tenants-in-common) with no more than two other persons. To determine the share of each co-owner (and accordingly a prorata proportion of the Mortgage Loan) the ownership proportions shown in the Land Registry Record of Owners shall be conclusive and if no proportions are shown each co-owner shall be deemed to have equal shares. If the Employee’s spouse is one of the co-owners, then the value of the Property (and accordingly a prorata proportion of the Mortgage Loan) for the purpose of determining the Interest Subsidy shall be determined by reference to the Employee and his spouse’s shares in such Property.

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Provided that the Permanent Secretary or the Director shall have the absolute

discretion to decide whether, in special circumstances, the Employee’s co-ownership of the Property with more than two other persons can be accepted.

5. Mortgage Criteria

(a) Subject to the absolute discretion of the Permanent Secretary or the Director to approve any other mortgages or charges pursuant to Clause VIII.5, only the following types of mortgage over the Property will be acceptable for the purposes of this Scheme (“the Mortgage”) :-

(i) a first legal mortgage or charge on the Property which is for a fixed period repayable on a straight-line method, i.e. by equal monthly instalments of principal and interest throughout the whole repayment period;

(ii) a first legal mortgage or charge on the Property which is for a fixed period repayable as to principal and interest using the same method as that used for calculating the Interest Subsidy under this Scheme;

The mortgage or charge referred to under (i) and (ii) of sub-clause (a) shall be referred to as the “Legal Mortgage”; and

(iii) an equitable mortgage or charge for the purpose of acquiring an uncompleted property on the same repayment terms as in (i) or (ii) of sub-clause (a) (“Equitable Mortgage”).

(b) Subject to the absolute discretion of the Permanent Secretary or the Director to approve any other mortgages or charges pursuant to Clause VIII.5, monies secured by the Mortgage may only be for the financing of the Property and the Employee may not obtain any overdraft facilities or borrow monies other than for that purpose under the Mortgage.

6. Live-in Requirement

(a) An Employee must personally live in the Property as his full-time residence for so long as an Interest Subsidy is given under this Scheme. He shall not be entitled to let, sub-let or part with the possession of the Property or by any means or transactions whereby any one obtains the use or possession of the Property in contravention of the live-in requirement. This requirement shall be referred to as “the Live-In Requirement”.

(b) In respect of any uncompleted Property which is subsequently completed, the Employee is required to comply with the Live-In Requirement within 2 months after he has executed the Legal Mortgage on completion; and in any event, within 2 years from the date that Interest Subsidy first becomes payable, unless an extension has been granted by the Permanent Secretary or

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the Director. IV. INTEREST SUBSIDY

1. Mortgage Loan

An Employee may take up a mortgage loan of any size in either Hong Kong or

United States currency (“the Mortgage Loan”) with any bank or lending institution (collectively “the Lending Institution”) which is approved by the Permanent Secretary or the Director. For the avoidance of doubt, only one mortgage loan can be accepted for the purpose of an application under the Scheme. The Mortgage Loan shall, save when it fulfils the requirement under sub-clause 2, have no bearing on the calculation of the amount of the loan (“the Loan”) for the purposes of calculating the Interest Subsidy.

2. The Loan

(a) For the purposes of this Scheme the amount of the Interest Subsidy payable to a successful applicant will be determined by reference to the Loan which is the SMALLER of the following :-

(i) 30 months’ basic salary of the Employee; or

(ii) the actual amount of the outstanding Mortgage Loan.

In cases where the Mortgage Loan is denominated in United States dollars, it shall be converted into local currency by reference to an exchange rate as determined by the Permanent Secretary or the Director as at the date on which Interest Subsidy becomes payable under Clause IV.5.

(b) The Mortgage Loan referred to in sub-clause (a)(ii) above shall be the outstanding indebtedness (in relation to the Mortgage Loan) at the first time the Interest Subsidy is determined for the Employee under this Scheme. Further, the Loan shall be reduced each month by the amount of principal repayment in that month.

(c) For the avoidance of doubt, the Employee’s basic salary as at the date announced by the Permanent Secretary or the Director (“the Announced Date”) in the Circular shall be used to calculate the amount under sub-clause (a). In the event that any retroactive adjustment of the Employee’s basic salary results in any increase or decrease in the Employee’s basic salary as at the Announced Date, then the amounts under sub-clause (a) shall be adjusted correspondingly.

3. Applicable Interest Rate

(a) The actual interest rate charged by the Lending Institution on the date that the Mortgage Loan is drawn down or on the date the Interest Subsidy becomes payable under this Scheme, as the case may be, shall be used to determine the Interest Subsidy payable to the Employee (“the Initial Interest

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Rate”); and

(b) Except as provided for in sub-clauses (c), (d) and (e), any subsequent changes to the actual interest rate paid by the Employee under his Mortgage shall not be relevant for the purposes of determining any subsequent adjustment to the Initial Interest Rate. The Initial Interest Rate as adjusted subsequently from time to time pursuant to this Clause 3 shall be referred to as the “Applicable Interest Rate”; and

(c) The Initial Interest Rate shall fluctuate in accordance with movements in the Reference Lending Rate from time to time. If the Reference Lending Rate quoted at the date that the Initial Interest Rate was determined (“the Initial Reference Lending Rate”) varies, the interest rate determining the Interest Subsidy shall automatically vary by the same margin and to the same extent as the variations in the Reference Lending Rate from the Initial Reference Lending Rate from time to time, and

(d) In addition to sub-clause (c), the Initial Interest Rate or the Applicable Interest Rate, as the case may be, shall, subject to this sub-clause and sub-clause (e), fluctuate in accordance with changes of the actual interest rate (caused by reasons other than movements in the best lending rate of the lending institution of the Employee) chargeable on the Mortgage Loan from time to time. If the changes are due to any causes other than movements in the best lending rate of the lending institution of the Employee, the Employee shall apply in writing to the Permanent Secretary or the Director not later than 14 days from the date of such changes for recognition of such changes in determining the Interest Subsidy. The Permanent Secretary or the Director shall, upon receipt of the Employee’s application in writing, determine :-

(i) whether the Initial Interest Rate or the Applicable Interest Rate, as the case may be, shall be adjusted by the same margin and to the same extent as the changes of the actual interest rate; and

(ii) the effective date of such adjustment for determining the Interest Subsidy.

(e) Notwithstanding that the Employee may fail to apply for recognition in accordance with sub-clause (d), the Permanent Secretary or the Director shall be entitled to determine or direct at any time, without prejudice to his other rights and powers, if the Initial Interest Rate or the Applicable Interest Rate chargeable on a Mortgage Loan changes or has changed :-

(i) whether the Initial Interest Rate or the Applicable Interest Rate, as the case may be, shall be adjusted by the same margin and to the same extent as the changes of the actual interest rate;

(ii) the effective date of such adjustment for determining the Interest Subsidy; and

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(iii) that appropriate adjustments be made to the Interest Subsidy from

the effective date so determined.

(f) Subject to sub-clauses (d) and (e), in the event that the Employee initially

acquires an uncompleted Property with the aid of an Equitable Mortgage in respect of which he is receiving Interest Subsidy, and upon the completion of the said Property a subsequent Legal Mortgage is taken out which results in any adjustment in the actual interest rate charged by the Lending Institution, then in such a case an adjustment shall also be made in the Interest Subsidy as from the first day of the month following the date of the Legal Mortgage as if the Initial Reference Lending Rate was determined on the first day of the month following the date of the Legal Mortgage.

4. The Amount of Interest Subsidy

(a) The amount of monthly interest subsidy (‘the Interest Subsidy’) will be one third of the monthly interest.

(b) The monthly interest in sub-clause (a) above will be calculated by multiplying the outstanding Loan at the beginning of each month by the Applicable Interest Rate per month or 1% per month, whichever is less.

(c) For calculating the outstanding Loan at any time, the amount of monthly principal repayment will be the monthly loan instalment minus the monthly interest as calculated in sub-clause (b) above.

(d) The amount of monthly loan instalment in sub-clause (c) above will be calculated on the basis of a mortgage repayment period of -

(i) the outstanding repayment period (from time to time) of the Mortgage Loan; or

(ii) the outstanding Entitlement Period;

whichever is the shorter.

(e) Subject to Clauses VIII.2 and VIII.4, an Employee may vary the repayment period of Mortgage in the event of a change in mortgage interest rate charged by the Lending Institution or in the event that the Employee makes an early partial repayment of the Mortgage Loan. On each such occasion of a revision in the repayment period of the Mortgage, the amount of Interest Subsidy will be recalculated on the basis of the revised outstanding repayment period of the Mortgage Loan or the outstanding Entitlement Period, whichever is the shorter.

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5. Date on which Interest Subsidy Becomes Payable

The date on which Interest Subsidy shall become payable to a successful

applicant under this Scheme shall be:-

(a) In the case that any Employee or his spouse intends to relinquish any of the Housing Benefits as provided under Clause III.2(c) in order to participate in this Scheme, the first day of the month following the month in which he or his spouse so relinquishes the same; or

(b) (i) If the application under this Scheme relates to the financing of a Property the Mortgage of which is in existence prior to the date of approval-in-principle by the Permanent Secretary or the Director, the date on which approval-in-principle is granted by the Permanent Secretary or the Director, or if the Employee intends to restructure the payment under his Mortgage, on the first day of the month following the effective date of the restructuring as aforesaid, or if the Employee’s Application fails to satisfy any of the requirements specified by the Permanent Secretary or the Director, then on the date on which any necessary rectification made is subsequently accepted by the Permanent Secretary or the Director; or

(ii) If the application under this Scheme relates to the acquisition of a Property or the financing of a Property the Mortgage of which is executed subsequent to the date of approval-in-principle by the Permanent Secretary or the Director, the first day of the month following the date on which the Employee draws down the Mortgage Loan relating to such purchase or if the Employee’s Application fails to satisfy any of the requirements specified by the Permanent Secretary or the Director, then on the date on which the Application is subsequently accepted by the Permanent Secretary or the Director;

whichever date is the latest. V. THE PERIOD OF ENTITLEMENT

1. Entitlement Period

An Employee shall be entitled to receive Interest Subsidy up to a maximum

aggregate period of 120 months (“the Entitlement Period”).

2. Previous Receipt of a Housing Subsidy

The Employee’s Entitlement Period x A - B (in months) A

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where A : represents the Employee’s or his spouse’s full period of entitlement (in months) of Housing Subsidy under his current or previous employment;

B : represents the aggregate period (in months) during which he and/or his spouse has received Housing Subsidy from his current or previous employer. For the purpose of calculation, an incomplete month shall be regarded as a full month.

3. Married Couples

In the event that an Employee and his spouse are both employees of the same or

different Subvented Organization :-

(a) then the period during which they have been so married and one of them has received Interest Subsidy shall also be deemed to be the period during which the other has also received Interest Subsidy;

(b) if the marriage of the Employee and his spouse is subsequently dissolved by the granting of a decree absolute of divorce, the person who is deemed to have received Interest Subsidy by reason of the marriage may apply in his own right. His Entitlement Period shall be the shorter of the following periods :-

(i) his Entitlement Period on the date that Interest Subsidy was first paid to his ex-spouse less the period that he is deemed to have received Interest Subsidy by virtue of his marriage; or

(ii) his Entitlement Period on his joining this Scheme in his own right; and,

(c) if the Employee and his spouse have both applied for Interest Subsidy and both of the applications meet the application criteria, only one of the applicants shall be entitled to receive the Interest Subsidy. For this purpose, the Employee and his spouse must elect one of them to receive the Interest Subsidy, and this election, once made, shall be irrevocable.

4. Break in Employment

(a) Any Employee who rejoins any Subvented Organization after a break in employment shall be entitled to apply for Interest Subsidy as a new applicant (that is, his previous service will not be treated as Qualifying Service), subject to all the terms and conditions of this Scheme. His Entitlement Period on rejoining this Scheme shall be the shorter of the following periods :-

(i) His (or where his spouse was then receiving Interest Subsidy, his spouse’s) Entitlement Period on the date that Interest Subsidy was

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first paid to him or his spouse (as the case may be) less the period during which he has or is deemed to have received Interest Subsidy under his previous employment with any Subvented Organization; or

(ii) His Entitlement Period on rejoining this Scheme.

Provided that if an Employee (or his spouse as the case may be) has discharged the previous mortgage (other than in connection with the disposal of the previous property for the purposes of acquiring another property in respect of which he continues to receive Interest Subsidy) or if the previous mortgage is foreclosed for whatever reasons before the aforesaid break in employment, the Employee shall cease to be entitled to Interest Subsidy and he shall not be eligible to apply under the Scheme.

(b) An Employee may remain in the Scheme even if he joins another Subvented Organization without a break provided that he continues to hold a subvented post.

(c) An Employee is deemed to have a break in service if he is not in receipt of a salary from his Subvented Organization save in the case of no pay sick leave or no pay study leave or such short break in service which the Permanent Secretary or the Director may in his absolute discretion approve.

VI. PAYMENT OF INTEREST SUBSIDY

1. The Government shall before the end of each month remit to the bank account of

the Subvented Organization the Interest Subsidy for that month payable to its Employees. The Interest Subsidy may be prorated for any incomplete month. No Interest Subsidy shall be paid to the Employee direct, and the Subvented Organization will arrange payment to the Employees of their Interest Subsidy received, in arrears at the same time as salaries.

2. The Employees will be paid through their Subvented Organization any shortfall (if any) in Interest Subsidy due to retroactive adjustment of basic salary as at the Announced Date or retroactive adjustment in Applicable Interest Rate.

VII. EMPLOYEE’S OBLIGATIONS DURING THE PERIOD THAT INTEREST

SUBSIDY IS PAYABLE

1. At all times that Interest Subsidy is payable to the Employee under this Scheme, the Employee must ensure that :-

(a) each of the criteria for eligibility under this Scheme contained in Clause III.1 remain fulfilled, and that the Employee does not breach or contravene the Double Benefits Rule or any of these terms and conditions; and

(b) there will be no variation to the terms and conditions of the Mortgage from that in existence at the time of the Formal Approval, save as provided under

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Clause IV.4(e); and (c) the Live-In Requirement is complied with.

2. To ensure due compliance with the Employee’s obligations contained in sub-

clause (a) the Employee agrees to furnish such evidence as the Government may reasonably require from time to time and to permit authorised personnel of the Government to enter and remain at the Property at any time and for such reasonable duration as they see fit to ascertain that the Live-In Requirement is being complied with.

VIII. CHANGES IN THE EMPLOYEES’ CIRCUMSTANCES

1. Disposal of Property:-

(a) In the event that an Employee intends to dispose of any Property in relation to which the Government is providing an Interest Subsidy the Employee must notify the Permanent Secretary or the Director in writing at least 14 days before the scheduled completion date of such disposal of the Property and the scheduled date of the discharge of the Mortgage, otherwise he shall be deemed to have irrevocably given up his right to participate in this Scheme as from the date of the disposal or discharge as aforesaid.

(b) The following provisions in this sub-clause (b) shall apply to any Employee who is desirous of disposing of the Property and acquiring another property (“the Second Property”) in respect of which he intends to continue to receive the Interest Subsidy that has been paid to him (with such adjustment as set out in sub-clause (c)) :-

(i) he must apply in writing (“Application for Change of Property”) and obtain the approval of the Permanent Secretary or the Director before he sells or otherwise disposes of his existing property; and

(ii) the Employee must sell the Property and apply the net sale proceeds (“Net Proceeds”) in the acquisition of the Second Property within six months of the approval by the Permanent Secretary or the Director, subject to such extension(s) of time that the Permanent Secretary or the Director may grant to the Employee; and

(iii) Net Proceeds are determined by the selling price of the Property (which means the sale price stipulated in the sale and purchase agreement, or other documents acceptable to the Permanent Secretary or the Director, in respect of the Property) reduced by :-

(1) the outstanding Mortgage Loan on the Property at the date of discharge of the Mortgage;

(2) the total amount of partial payment (lump sum) made to the Lending Institution by the Employee out of his own resources (excluding topped-up payment for monthly instalments and loans from public funds) for reducing the Mortgage Loan on the Property since the Interest Subsidy for the Property commenced to be receivable by him; and

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(3) a maximum of 10% of the Appraised Value of the Second

Property; and

(iv) the acquisition of the Second Property must be completed within 6 months of the approval by the Permanent Secretary or the Director, subject to such extension(s) of time that he may grant to the Employee.

(c) Upon mortgage of the Second Property, the Loan for the purpose of calculating the Interest Subsidy under Clause IV.4 will be :-

(i) the outstanding Loan as reduced under Clause IV.2(b) at the time of disposal of the Property; or

(ii) the outstanding Mortgage Loan on the Second Property;

whichever is less.

Provided that the Mortgage Loan on the Second Property that can be taken with a Lending Institution shall not exceed the Appraised Value of the Second Property reduced by the Net Proceeds, and if the Second Property is acquired before the date of an Employee’s Application for Change of Property, such Mortgage Loan shall be further reduced by any down payment and instalments already made before the date of his Application for Change of Property.

(d) For the avoidance of doubt, the foregoing sub-clauses (b) and (c) shall apply on each subsequent occasion that the Employee applies for a continuation of the Interest Subsidy. The words “Second Property” shall apply to subsequent acquisition of properties under this Scheme. All the terms and conditions of this Scheme shall govern the Employee’s subsequent acquisition of properties in respect of which Interest Subsidy is payable hereunder.

2. Change in Repayment Period

No variation shall be made to the mortgage repayment period except when a change in repayment period results as a consequence of a change in mortgage interest rate. If the Employee wishes to vary the repayment period of his Mortgage Loan under other circumstances, he must apply for and obtain the approval of the Permanent Secretary or the Director in writing within 14 days before such variation.

3. Change in Marital Status

(a) Any Employee who is receiving Interest Subsidy must notify the Permanent Secretary or the Director in writing immediately if there should be any change in his marital status but in any event within 2 months thereof.

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(b) Any Employee who is receiving Interest Subsidy but who shall infringe the

Double Benefits Rule by virtue of his marriage, must furnish a declaration to the Permanent Secretary or the Director to the effect that he elects for either :-

(i) the Interest Subsidy; or

(ii) the Housing Benefits which his spouse is entitled to; within the time limit specified under sub-clause (a) otherwise he shall be deemed to have elected to continue with the Interest Subsidy.

4. Early Partial Repayment

(a) In the event that the Employee wishes to make an early partial repayment of the Mortgage Loan, he must within 14 days from the partial repayment notify the Permanent Secretary or the Director in writing of the revised outstanding Mortgage Loan and repayment period.

(b) If the early partial repayment has the effect of reducing the Employee’s outstanding Mortgage Loan below the outstanding Loan, then the outstanding Loan and the Interest Subsidy will be adjusted downwards accordingly from the first day of the month following the date that the partial repayment is made.

(c) If the partial repayment has the effect of shortening or extending the outstanding repayment period of the Mortgage Loan, the amount of Interest Subsidy shall be re-calculated in the manner as set out in Clause IV.4(e).

5. Additional Facilities

(a) The Employee shall not obtain additional financing or facilities on the Property (together “the Additional Facilities”), save with the written approval of the Permanent Secretary or the Director.

(b) The Permanent Secretary or the Director may consider the merits of the case and grant his approval on such conditions as he may stipulate in his approval.

(c) (i) The Employee shall not be eligible for Interest Subsidy in respect of the Additional Facilities; and

(ii) the Net Proceeds on any disposal of the Property shall be determined before any repayment of the Additional Facilities.

6. Change to Title of Property

An Employee who is receiving Interest Subsidy must obtain prior approval in writing from the Permanent Secretary or the Director before he takes action to

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effect any change to the title of the Property. He shall within 14 calendar days report such change to the Permanent Secretary or the Director.

7. Cessation of Ownership or Mortgage

An Employee who is receiving Interest Subsidy shall, within 14 calendar days, give notice to the Permanent Secretary or the Director, in the event of cessation of ownership or mortgage in respect of the Property.

IX. CESSATION AND SUSPENSION OF INTEREST SUBSIDY

1. Cessation of Interest Subsidy

Any Employee shall cease to be entitled to Interest Subsidy :-

(a) when he ceases to be a full-time employee of any Subvented Organization

or when he ceases to hold a subvented post in any Subvented Organization; or

(b) in the case of a teacher in an aided school, when he withdraws his Provident Fund benefits or his contributor’s account of the Provident Fund is closed in accordance with rules made under the Education Ordinance (Cap 279), unless his eligibility is preserved under the approved arrangements for aided schools to switch to Direct Subsidy Scheme; or

(c) when he dies; or

(d) when the Employee’s spouse receives any Housing Benefits, in which case the Employee must immediately notify the Permanent Secretary or the Director in writing; or

(e) when he has discharged the Mortgage; or

(f) when the Mortgage is foreclosed for whatever reasons; or

(g) under the provision of Clause XIII.1 hereof.

2. Suspension of Interest Subsidy Entitlement

The Employee shall not be entitled to any Interest Subsidy during any period of

no pay leave (except no pay sick leave), save with the approval of the Permanent Secretary or the Director.

On the occurrence of the events specified in sub-clauses 1 (with the exception of sub-clauses 1(c) and 1(g)) and 2 above, the Employee must immediately notify the Permanent Secretary or the Director in writing of such occurrence.

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X. APPLICATION PROCEDURE

1. Circular

An Employee may apply or re-apply for Interest Subsidy only in response to the

Circular which will be issued by the Permanent Secretary or the Director from time to time. Such application shall be on the forms provided for this purpose and shall be referred to as the “Application”.

2. Approval-In-Principle & Application

(a) The Permanent Secretary or the Director may reject the Application, require more information or grant an approval-in-principle based on the Application.

(b) In the event that approval-in-principle is granted, the Employee must submit all documents as may be required by the Permanent Secretary or the Director evidencing his acquisition and/or mortgage of the Property within 3 months of the date of the approval-in-principle by the Permanent Secretary or the Director. If the Employee’s Application fails to satisfy the terms of this Scheme or the requirements of the Permanent Secretary or the Director and he cannot rectify the same prior to the expiration of the 3-month period, then the Employee shall be required to make the necessary rectification by a date specified by the Permanent Secretary or the Director (“the Specified Date”).

(c) The Permanent Secretary or the Director may in his absolute discretion grant to the Employee extension(s) of time beyond the 3-month period or the Specified Date.

(d) Failure to submit all required documents or make the necessary rectification within the 3-month period from the date of the approval-in-principle by the Permanent Secretary or the Director, or by the Specified Date, or on the expiration of any extension(s) of time granted by the Permanent Secretary or the Director, shall result in a withdrawal of the approval-in-principle by close of business on the last day of such period (“the Withdrawal Date”).

(e) If the Employee withdraws his Application after the approval-in-principle is granted to him, the approval-in-principle shall be deemed to have been withdrawn on the Withdrawal Date.

(f) The Employee may not re-apply for Interest Subsidy until after the expiration of a period of 12 months from the Withdrawal Date.

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3. Documents to be Submitted

The Permanent Secretary or the Director may in his absolute discretion determine

the documents that must be submitted, in accordance with a stipulated time period, with the Application, which documents shall include but not be limited to a certified true copy of Record of Owners, a statement from the Lending Institution specifying that the Mortgage is in respect of a Property as set out in Clause III, copy of assignment or mortgage or valuation report.

XI. AMENDMENTS AND REGULATIONS

1. The Government may from time to time amend, vary, or cancel any of the terms and conditions contained herein, without notice to nor consent of the Employees PROVIDED ALWAYS that any amendment, variation or cancellation which is made subsequent to an Employee’s Application shall not affect his interest under the terms and conditions as are prevalent at the time of his Application.

2. The Permanent Secretary or the Director may from time to time issue any regulations under this Scheme and amend, vary or cancel the same at any time without notice to, nor consent of the Employees.

XII. AUTHORITY AND DISCRETION OF THE PERMANENT SECRETARY OR THE DIRECTOR

1. The Permanent Secretary or the Director shall have the absolute right and discretion to refuse any application for Interest Subsidy and to discontinue the payment of Interest Subsidy without assigning any reason therefor; and the Government shall not be liable to the Employee for any loss, costs, expenses or damages or claims arising out of or in connection with such refusal or discontinuance.

2. The decision of the Permanent Secretary or the Director on these terms and conditions or on any matter in relation to or arising therefrom shall be conclusive and binding on the Employee. Such decision shall include but not be limited to :-

(a) the Appraised Value of the Property or the Second Property (as the case may be); and

(b) the interpretation of these terms and conditions; and

(c) his assessment of the Application; and

(d) the administration of this Scheme.

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Provided that the Permanent Secretary or the Director shall have the absolute

discretion, in circumstances which he thinks fit, to exempt any Employee from any of the terms and conditions contained herein.

3. Where the Permanent Secretary or the Director is entitled to exercise his discretion under these terms and conditions, he may do so without assigning any reasons therefor.

4. Any Employee who considers himself aggrieved by a decision of the Permanent Secretary or the Director may seek advice from the advisory committee (“the Advisory Committee”) which shall include one or more unofficial members appointed by the Government, and the Permanent Secretary or the Director may reconsider his decision after receiving advice from the Advisory Committee.

XIII. DISQUALIFICATION, ETC

1. An Employee who has furnished any incorrect information, any material

information which is false or misleading, any false declaration, or who is in breach of any of these terms and conditions or the regulations promulgated hereunder, then, depending on the nature of the case, he may :-

(a) be disqualified from participation in this Scheme in which case he shall not be entitled to receive any Interest Subsidy under the Scheme and the Government shall cease paying to him the Interest Subsidy; and/or

(b) render himself liable to civil and/or criminal proceedings. 2. The Employee shall undertake to refund to Government any Interest Subsidy

which should not have been paid to him, or any overpayment of Interest Subsidy. Such a refund is without prejudice to any other rights and remedies of the Government.

XIV. NOTICE

Any notice required to be given or served on the Employee under these terms and

conditions shall be deemed to have been given or served within 24 hours when sent by ordinary prepaid post to the address of Property or the Second Property (as the case may be), or such other address as the Employee may have through his Subvented Organization notified the Permanent Secretary or the Director in writing from time to time. Change of address notified by the Employee shall only take effect when the Permanent Secretary or the Director confirms the same to the Employee in writing.

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XV. TAX ON INTEREST SUBSIDY

Under this Scheme, the Government pays the Interest Subsidy to the Employee

(through his Subvented Organization) by virtue of his employment with the Subvented Organization, and accordingly the Interest Subsidy is assessable to salaries tax under the Inland Revenue Ordinance.

XVI. WAIVER

Failure or delay on the part of the Permanent Secretary or the Director to exercise any

right, power or privilege hereunder shall not operate as a waiver thereof, nor shall any single or partial exercise of any right, power or privilege preclude any future exercise thereof.

XVII. LAWS OF HONG KONG

These terms and conditions shall be governed by and construed in accordance with

the laws of Hong Kong.

MORTGAGE INTEREST SUBSIDY SCHEME TERMS & CONDITIONS JULY 2007

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SCHEDULE I (Clause I.1)

Examples of Publicly-Funded Organizations (in alphabetical order) (1) Chinese University of Hong Kong (2) City University of Hong Kong (3) Consumer Council (4) Hong Kong Baptist University (5) Hong Kong Institute of Education (6) Hong Kong Monetary Authority (7) Hong Kong Polytechnic University (8) Hong Kong Productivity Council (9) Hong Kong Tourist Association (10) Hong Kong Trade Development Council (11) Hong Kong University of Science and Technology (12) Hospital Authority (13) Legislative Council Commission (14) Lingnan University (15) University of Hong Kong (16) Vocational Training Council

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SCHEDULE II

(Clause I.1)

Education Bureau - Subvented Organization

Centralized Braille Production Centre of the Hong Kong Society for the Blind

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SCHEDULE III

(Clause I.1)

Subvented Service Units

(1) Caritas Lok Mo Skills Centre (2) Hong Chi Pinehill Advanced Training Centre (3) Rehabus service run by the Hong Kong Society for Rehabilitation

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SCHEDULE IV

(Clause I.1)

Department of Health - Subvented Organizations (in alphabetical order)

(1) Caritas Wong Yiu Nam Centre (2) Family Planning Association of Hong Kong (3) Hong Kong Council on Smoking and Health (4) Hong Kong Red Cross First Aid Training Centre (5) Hong Kong St. John Ambulance (6) Society for the Aid and Rehabilitation of Drug Abusers

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SCHEDULE V

(Clause I.1)

Subvented Health Service Unit

Prince Philip Dental Hospital