The end of the month end of the conversion of the existing personal mortgage pricing benchmark
Which is more cost-effective, fixed interest rate or LPR?
On March 1 this year, the much-watched conversion of the pricing benchmarks for individual housing loans was officially launched. According to the announcement of the central bank, the conversion of stock floating-rate loan pricing benchmarks should in principle be completed before August 31, 2020. Seeing the deadline is approaching, whether to choose a fixed interest rate or choose a floating interest rate based on the LPR (loan market quoted interest rate) as a benchmark, customers who are still hesitant must make a decision.
Only one conversion opportunity in both ways
For a long time, personal mortgage interest rates have been discounted or increased by a certain percentage from the central bank loan benchmark interest rate. According to the central bank's announcement, starting from January 1, 2020, financial institutions will no longer use benchmark interest rates for new loans issued by financial institutions, and instead mainly refer to LPR for loan pricing. This means that personal loan interest rates should also be decoupled from the benchmark interest rate and are closely related to LPR.
Regarding the previous stock loans, the central bank issued an announcement at the end of last year stating that the conversion of stock floating-rate personal loan pricing benchmarks will be officially launched on March 1, 2020, and will be completed before August 31, 2020 in principle.
Specifically, the central bank gave two options for existing mortgage customers. One is to switch to "LPR + plus point" floating interest rate, that is, to convert the interest rate pricing method agreed in the original contract to use LPR as the pricing benchmark plus points (plus points can be negative ), the value of added points is fixed during the remaining period of the contract; the second is to convert to a fixed interest rate. The pricing basis can only be converted once, and cannot be converted again after the conversion.
Choosing when to convert does not affect the value of added points
It is understood that most banks started to switch jobs in March and April this year. Affected by the epidemic, banks all recommend customers to switch independently through online channels such as mobile banking and online banking. The conversion work has started for a few months. Will customers who choose to convert now suffer more than customers who converted before? The answer is obviously no.
According to the central bank's announcement, no matter which pricing method is selected, the loan interest rate will remain the same before and after the time of conversion, which is the same as the original mortgage interest rate.
The relevant person in charge of the central bank previously explained that the same commercial personal housing loan, at any point in time between March and August 2020, will be based on the December 2019 LPR (the LPR over 5 years is 4.8%) and the original implementation The interest rate level determines the point value, and the point value is not affected by the time of conversion. Specifically, the added value = the mortgage interest rate before the conversion -4.8%.
Most banks will convert to LPR in batches
What will the bank do if the customer does not actively switch before August 31? At present, most banks have announced that they will convert batches on behalf of customers to LPR pricing. If the customer has an objection, he can ask the bank to transfer it back or negotiate for settlement before the end of the year.
There is still a little time before the unified date of batch conversion. Customers can make independent conversions through mobile banking, smart teller machines, loan handling banks and other channels before batch conversion. It should be reminded that the loan pricing benchmark can only be converted once and cannot be converted again after the conversion.
According to the announcements of various banks, if customers participate in batch conversion and later disagree with the conversion result, they can self-service transfer through mobile banking or negotiate with the loan handling bank before December 31, 2020 (inclusive).
The Agricultural Bank announced that if customers wish to cancel the batch conversion and maintain the original contract pricing method, they can apply through relevant channels, but the cancellation can only be processed once.
Some insiders pointed out that stock mortgages were basically based on the benchmark loan interest rate before, and after the reform of the LPR formation mechanism, the benchmark loan interest rate gradually faded and the possibility of adjustment is unlikely. After the batch conversion, if the customer applies for the transfer back to the original contract arrangement, it is actually similar to choosing a fixed interest rate.
Some customers may lower mortgage interest rates during the year
According to the bank's announcement, from the point of conversion to the first interest rate adjustment date (repricing date) thereafter, the mortgage interest rate remains unchanged. On each interest rate adjustment day, the loan interest rate level will be recalculated based on the sum of the most recently released corresponding period LPR and the point value. Previously, the repricing cycle for most of my country's existing mortgages was one year, and the repricing date was mostly on January 1 of each year or the date corresponding to the loan issuance date.
It is understood that the various banks are not completely consistent with regard to the interest rate adjustment date after the conversion of the pricing benchmark. Among the six major banks, China Construction Bank, Bank of Communications, Postal Savings, Bank of China, and Agricultural Bank of China have stipulated that the interest rate adjustment date remains unchanged from the original contract, and only the ICBC repricing date is adjusted to the date corresponding to the loan issuance date.
For customers whose repricing date is after the conversion date, the latest mortgage interest rate will be implemented during the year; and for customers whose repricing date is January 1 of each year or before the conversion date, adjustments will be made at the specified time next year.
For example, if the customer’s loan issuance date is October 9, 2010, and the customer participates in batch conversion on August 26 this year, and the repricing date is determined to be October 9 each year, then the customer will be on October 9 this year For the first repricing, the loan execution interest rate must be calculated according to the LPR value announced on September 20 this year; if the customer’s repricing date is June 10 each year, and it is also in August this year to participate in the bank’s unified conversion, it will be next year The first repricing took place on June 10, and the effective interest rate will be calculated based on the LPR in May 2021. If the loan repricing date is January 1 of each year, the mortgage interest rate will be calculated based on the LPR released on December 20 this year when the loan is repricing on New Year's Day next year.
Compared with last December, the current 5-year LPR has been reduced by 15 basis points. Therefore, if customers who choose the LPR pricing method will re-set the interest rate in the near future, the mortgage interest rate will be reduced by 0.15 percentage points immediately. Text/Reporter Cheng Jie Co-ordinated by Yu Meiying
How to choose to see customers' judgment on interest rate trends
Industry insiders pointed out that the two conversion methods have their own advantages, and the specific choice mainly depends on the customer's own judgment on the future market interest rate trend. If it is believed that LPR will fall in the future, then it will be better to switch to reference LPR pricing; if it is believed that LPR may rise in the future, then it will be advantageous to switch to a fixed interest rate.
However, since the term of a stock mortgage can generally be up to 30 years, even if the loan is repaid early, many people need to bear at least 10 years. It is indeed too difficult for ordinary people to accurately judge the trend of market interest rates over such a long period of time. Therefore, Wen Bin, the chief researcher of Minsheng Bank, suggested that stock mortgage customers should also choose a more suitable method of interest rate conversion based on their specific circumstances, as well as the loan price, loan period, and loan balance. If the previous mortgage interest rate discount is strong and the remaining time of the monthly payment is relatively long, you can choose a fixed interest rate, which will help lock in the cost of the monthly payment and make it easier to make arrangements for the family's income and expenditure. If the remaining time of the monthly payment is short and the loan balance is not large, it may be more appropriate to choose a floating interest rate, because even if the LPR reverses, the interest rate risk can be avoided by prepayment.
A reporter from Beijing Youth Daily learned that since the reform in August 2019, LPR has made 13 quotations. At present, the 1-year LPR has accumulated down 46 basis points, and the 5-year LPR has accumulated down 20 basis points. Most bankers predict that since LPR still has some downside in the future, it may be a common way for borrowers to use LPR as a pricing benchmark (floating interest rate).