Has your mortgage interest rate pricing method changed?

  On March 1 this year, the highly anticipated conversion of the pricing benchmarks of individual housing loans officially kicked off. For people with mortgages, you can choose a fixed interest rate or LPR. LPR will change with the fluctuation of market interest rates.

  According to the regulations of the Central Bank, in principle, stock floating-rate loans must be converted to interest rate pricing methods before August 31, and the pricing benchmark can only be converted once.

  Should I switch to LPR or fixed interest rate?

  There is one month left, so hurry up!


What is LPR?

  LPR is the abbreviation of the interest rate quoted in the loan market, which refers to the loan interest rate imposed by financial institutions on its highest-quality customers.

  In August 2019, the central bank reformed and improved the lending market quotation rate (LPR) formation mechanism. The new LPR quotation method was changed to be formed according to the open market operating interest rate; the quotation rate period was increased by more than 5 years; the quotation frequency was changed from the original daily quotation Change to a monthly quotation.

  According to regulations, loans that have been issued before January 1, 2020, or have signed a contract but have not yet issued loans, can be converted into anchored LPR with reference to loan benchmark interest rates and floating interest rates.


How to choose between fixed interest rate and LPR?

  When switching, individuals face two choices:

  The first is to choose a fixed interest rate. The mortgage interest rate remains the same as your current interest rate level, and your mortgage interest rate will remain the same regardless of how the LPR interest rate changes in the future.

  The second is to choose floating interest rate (LPR). Mortgage interest rates vary according to changes in LPR.

  So, which one is better?

  Regardless of the conversion method, the converted mortgage interest rate shall not be lower than the original interest rate level, unless the LPR decreases. This is mainly to implement the real estate market regulation and control requirements. Under the circumstances that liquidity is reasonable and abundant and market interest rates are expected to decline, adhere to the positioning of "housing to live and not speculate", not to send false signals to the real estate market, and also help control the rise Fast residential sector leverage ratio.

  Specifically, industry experts predict that LPR will still have a certain downside in the future. Borrowers and banks negotiate on an equal footing, and using LPR as a pricing benchmark (floating interest rate) may be a common approach.


How to convert to LPR?

Step 1: Determine the spread

  [Spread = mortgage interest rate before conversion-corresponding period LPR]

  For example, if your mortgage is increased by 10%, based on the current interest rate level of 4.9%, the mortgage interest rate before the conversion is 5.39%. According to the regulations of the central bank, the LPR of December 2019 is anchored during the conversion period of personal mortgages, and the LPR of the month with a maturity of more than 5 years is 4.8%.

  According to the above, your spread=5.39%-4.8%=0.59% or 59 basis points.

  The spread is fixed during the remaining period of the contract.

Step 2: Determine the mortgage interest rate

  [Converted mortgage interest rate = corresponding period LPR on the repricing date + spread]

  The repricing cycle can be renegotiated when converting to LPR. The shortest repricing cycle for commercial personal housing loans is one year, which means that the mortgage interest rate will not change within one year. According to the reporter's understanding, the repricing date selected by many banks is January 1 of each year, or the date corresponding to the loan disbursement date.

  If your repricing date is January 1, your mortgage interest rate will not change in 2020 due to the anchoring of the December 2019 LPR. And the mortgage interest rate after conversion in 2021 = LPR in December 2020 (assumed to be 4.60%) + 0.59% = 5.19%, which will be 20 basis points lower than in 2020.

  In other words, how much the LPR of this repricing day has changed from the last time, and how much your mortgage interest rate will be adjusted.


Who is affected?

  Generally speaking, as long as there are personal housing loans are affected, but there are several exceptions:

  1. Provident fund part of personal housing loan and portfolio loan of provident fund;

  2. Fixed interest rate loans;

  3. Personal housing loans due before the end of 2020;

  In other words, if one of these three conditions is met, it will not be affected by the conversion.

  However, it should be reminded that the conversion of the pricing benchmark for existing personal loans will in principle end on August 31. If it has not been converted before, the bank will automatically adjust to the LPR floating interest rate or fixed interest rate, depending on which bank has different standards.

  Before August 31st, you can choose to process through e-banking or mobile banking, so you don’t need to go to the counter, just confirm on the e-banking. Or you can choose a convenient time to handle the corresponding business at the bank counter.

  Source: CCTV Finance WeChat Comprehensive China Securities Journal