35-year-old Michael was sitting on the living room sofa, holding two documents—one was a mortgage pre-approval letter from the bank, and the other was the tuition bill for his son's international school. His wife softly said beside him, 'If we buy the house now, the monthly mortgage will be $25,000, but Jason will enter primary school next year, and the international school tuition for a year is $180,000...' This scene is likely the real dilemma that many middle-class families in Hong Kong are currently facing.
According to the 2024 data from the Rating and Valuation Department, the Hong Kong private residential property price index remains high, while education expenses continue to rise year after year. Faced with the dilemma of 'buying a property or saving for an education fund,' many parents find themselves torn: on one hand, there is the urgency of getting on the property ladder, and on the other hand, there is the reality that their children's education cannot be compromised. In today's article, I will use my 15 years of real estate investment experience to break down this most troublesome financial dilemma for middle-class families.
Core Concept Analysis: The Fundamental Differences Between Mortgages and Education Funds
Fundamental Differences in the Nature of Assets
Many people compare 'buying a property' and 'saving for an education fund' as if they were on opposite ends of a scale, but in fact, these are two completely different types of financial decisions. Buying a property is an asset appreciation investment: while you are paying your mortgage each month, the property itself may appreciate, and once the mortgage is fully paid, the asset is entirely yours. In contrast, an education fund is a consumptive expense: the money spent will not come back, but in return, it provides your children with the quality of education and future competitiveness.
:::tip Expert Opinion From the perspective of asset allocation, the ideal situation is to 'have both,' but in reality, most middle-class families have limited cash flow. The key is to find the balance between the 'optimal timing' and 'leverage usage.' :::
Consideration of Time Costs
In Hong Kong's property market, the timing of 'getting on the property ladder' is often more important than whether to get on it at all. If you hesitated in 2019, the same unit could be 20-30% more expensive by 2021. However, the time pressure on education funds is equally real—children's growth won't wait, and missing the golden learning period cannot be reversed.
According to the data from the Hong Kong Monetary Authority, the average interest rate for residential mortgages in Hong Kong in the first quarter of 2024 is about 4.125%, while the expected return rate of education savings insurance is generally between 2-3%. Looking at the numbers alone, the potential return of the property market is obviously higher, but this does not mean that one should completely sacrifice the education fund.
The Real Calculation of Cash Flow Pressure
Let's talk with actual numbers. Suppose a property priced at 5 million, with a down payment of 1.25 million (25%) and a mortgage of 3.75 million, a 30-year repayment period, and an interest rate of 4.125%, the monthly payment would be about 18,200. If you also need to save for your children's education fund, taking international schools as an example, the total tuition fee from primary to secondary school over 12 years is about 2 to 2.5 million, requiring an average annual saving of 160,000 to 200,000, which is approximately 13,000 to 17,000 per month.
Combined, the monthly cash flow requirement exceeds 30,000 yuan. For middle-class families with a monthly income of 60,000-80,000 yuan, the pressure is indeed considerable. This does not yet account for daily living expenses, insurance, emergency savings, and so on.
Practical Case Sharing: Three Different Choices of Families
Case 1: Get in the Car First, Pay for the Education Fund Later (Aggressive Type)
Background: Both husband and wife are 32 years old, the household has a monthly income of 90,000, with one 3-year-old child, and they are currently renting a unit with a monthly rent of 15,000.
Decision: In 2023, purchased a two-bedroom flat in Tuen Mun for 4.8 million, with a down payment of 1.2 million (including 500,000 from parental support), and a monthly mortgage payment of 17,500. In terms of education, the choice is to first attend a local subsidized school and reassess whether to switch to an international school when the children enter primary school.
Result: After one year, the property price rose to 5.2 million, with an unrealized gain of 400,000. Since 'mortgage is cheaper than rent' (the mortgage is 2,500 less than the rent), the monthly savings on rent are used to save for an education fund. Currently, 150,000 has been accumulated for education savings, and the plan is to have enough funds for the children to transfer to a private school at age 8.
:::success Key to Success
- Chose a 'buying a property at rental price' starter home to reduce cash flow pressure
- Flexibly adjust the educational path; it is not necessary to start attending an international school from kindergarten.
- Make good use of parental support to lower the down payment threshold
:::
Case 2: Save for Educational Fund First, Then Buy a Car (Conservative Type)
Background: Both husband and wife are 36 years old, the family has a monthly income of 120,000, and they have two children (6 years old and 4 years old). They are currently renting a unit in Kowloon Tong for a monthly rent of 22,000.
Decision: Since both children are already attending an international school, with an annual tuition fee of 350,000, the couple decided to first ensure that the education fund is sufficient, saving 30,000 per month specifically for education, and temporarily postponing the plan to buy a house.
Result: After three years, the accumulated education fund reached 1.08 million, sufficient to cover the next five years of tuition for two children. At this time, the property market had experienced an adjustment, and a three-bedroom unit in Kowloon Tong was successfully purchased for 6.5 million (15% lower than the peak). With ample reserves, the mortgage pressure was relatively low.
:::highlight Insider Tip If children are already attending an international or private school, transferring schools midway can have a certain impact on their adaptation. In such cases, 'stabilize education first, then wait for opportunities in the housing market' is a safer approach. :::
Case 3: Leveraging Both (Balanced Type)
Background: The couple are both 38 years old, with a household monthly income of 150,000, and have a 5-year-old child. They already own a self-occupied property (with an outstanding mortgage of 2 million).
Decision: Utilize the existing property to mortgage and cash out 1 million, with 600,000 used as the down payment for a second property (for investment purposes) and 400,000 injected into the education fund. The second property chosen is a Tsuen Wan unit with high rental yield, generating a monthly rental income of 13,000, which still results in positive cash flow after mortgage payments.
Result: It not only increased assets (the second property) but also ensured sufficient education funds. The rental income partially subsidized education expenses, achieving the effect of 'using property to support education.' After three years, the second property appreciated by 12%, allowing the option to sell for cash or continue holding to collect rent.
:::tip Experts remind This strategy requires a higher household income and risk tolerance. Refinancing to cash out will increase overall debt, and it is necessary to ensure stable cash flow and set aside at least 6 months of emergency reserves. :::
Notes and Risks: Avoid Common Financial Pitfalls
Misconception 1: Thinking 'I'll buy a house later' will definitely save more money
Many people think that 'renting first to save money, and then buying once you've saved enough' is a safe approach, but in reality, this strategy has two major blind spots:
- Rent is a pure expenditure: Paying 20,000 per month amounts to 240,000 a year, and 1,200,000 over five years — this money is completely unrecoverable and does not generate any asset appreciation.
- Property price increases may outpace savings growth: If you save 300,000 per year, but property prices rise by 5-8% annually, your savings may never catch up with the rate of property price increases.
Actual Data: Assuming a unit costs 5 million, if the property price increases by 5% per year, in five years it will be 6.38 million. You would need to save 1.38 million (price increase) + 1.6 million (down payment) = 2.98 million within five years, which means saving nearly 600,000 per year, something that is almost impossible for most middle-class families.
Misconception 2: Sacrificing all educational investments just to get on the train
Some parents, in order to 'get on the property ladder,' invest all their savings into the down payment, resulting in a significant compromise in their children's education quality. This approach may secure a property in the short term, but in the long run, it could affect their children's competitiveness and future development.
:::warning Risk Reminder Educational investment has a 'time window'; once missed, it cannot be remedied. Language learning, music training, and sports development all have optimal periods for cultivation. If one completely abandons these investments in order to buy a house, it may not be worth it. :::
Misconception Three: Excessive Leverage Leading to Cash Flow Disruption
Some investors hold multiple properties for the purpose of 'using property to finance education,' but they overlook the instability of rental income. If tenants default on rent, units remain vacant, or sudden large maintenance costs arise, it may lead to a cash flow breakdown, forcing them to sell the property to raise cash.
Professional Advice:
- Mortgage payments for investment properties should be covered by at least 80% of the rental income.
- Reserve at least 3-6 months of mortgage payments to cope with vacancies or emergencies.
- Do not lock all your funds in properties; maintain a certain level of liquidity.
The Three Major Principles of Risk Management
- Cash Flow First: Ensure that after deducting all fixed expenses each month (mortgage, education, insurance, living expenses), there is still at least 20% of savings space.
- Diversified Investment: Do not bet all assets on the property market; for education funds, consider more stable tools such as savings insurance or bond funds.
- Flexible Adjustment: Regularly review the family's financial situation and adjust strategies appropriately based on property market trends, children's growth stages, income changes, etc.
Expert Advice: How to Find the Balance Point That Suits You Best
Assess Your Family's Financial Health
Before making a decision, first assess your financial situation using the following indicators:
Mortgage Burden Ratio: Monthly mortgage payment ÷ Monthly household income ≤ 40% Education Expense Ratio: Annual education expenses ÷ Annual household income ≤ 20% Savings Rate: Monthly savings ÷ Monthly household income ≥ 20%
If your mortgage burden ratio has already exceeded 40%, coupled with high education expenses, the financial pressure will be very heavy. In this situation, it is recommended to adjust one of the factors first, such as choosing a more affordable starter home or temporarily opting for a school with lower tuition fees.
Priorities at Different Stages of Life
Children 0-3 years old (Preschool period):
- Education expenses are relatively low, making it a golden opportunity to buy a home
- Can choose entry-level properties where mortgage payments are lower than rent, saving on rent for savings
- Set aside some funds for education savings, but a large amount is not necessary
Children aged 4-6 (Kindergarten years):
- If choosing an international kindergarten, education expenses begin to increase
- Assess whether it is necessary to adjust housing plans, or choose schools in more affordable areas
- At this stage, there is still an opportunity to "have both options," the key is to choose the right starter home
Children aged 7-12 (Elementary School Years):
- Education expenses reach their peak, especially for international or private schools
- If not yet owning a home, it is recommended to first ensure sufficient education funds
- Consider 'rent first, buy later,' waiting for opportunities in the housing market adjustment
Children aged 13 and above (secondary school stage):
- The educational path has been set, making it difficult to change schools midway
- If an education fund is already secured, one can actively look for opportunities to buy a property
- Buying a property at this stage can leave assets for the child's future
Five Practical Decision-Making Frameworks
- 'Mortgage cheaper than rent' test: If the mortgage amount is cheaper than or similar to the current rent, prioritize buying a property.
- 'Education is irreversible' principle: If children are already attending international or private schools, education expenses cannot be compromised, and the home-buying plan can be postponed.
- 'Leverage safety line' check: Total debt (including mortgages) should not exceed six times the household's annual income.
- 'Opportunity cost' calculation: Compare the total cost difference between 'buying a property now vs buying a property in five years' (including rent expenditure, property price increase, etc.).
- 'Stress test' simulation: Suppose interest rates rise by 2%, income drops by 20%, or children need additional tutoring fees — can your financial situation cope?
Summary: There is no standard answer, only the choice that suits you best
The choice between a mortgage and an education fund has never had a one-size-fits-all answer. Some families are suited to 'buy a house first and fund education later,' some families should 'secure education first and wait for housing market opportunities,' and some families can use leverage to 'balance both.'
The key is to find the balance that suits you best based on your household income, your children's ages, your risk tolerance, and your views on the property market and education. Remember, buying a property is meant to improve your quality of life, not to sacrifice life for the sake of buying property; similarly, investing in education is for your children's future, but you should not take on an excessive financial burden because of it.
One last reminder: no matter which path you choose, you must set aside enough emergency reserves and insurance coverage. Life is full of uncertainties, and only by managing risks well can you move more steadily and farther on the path of pursuing asset growth and children's education.
Are you facing the dilemma of 'buying a property or saving for an education fund'?
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