Sino-Singapore Jingwei Client, August 25 (Zhang Shunan) "Choose a fixed interest rate or a floating interest rate?" This has caused homeowners with mortgages to repeatedly struggle, and now this "required question" has an answer. The "anchor change" of housing loans has entered the final moments. What impact will it have on repayment?
Fixed rate vs. floating rate
New latitude and longitude in the data map
The “anchor” of mortgage pricing has always been the benchmark interest rate in the past, which will fluctuate according to the benchmark interest rate. After the price of newly issued mortgages in 2019 has been steadily switched to the loan market price rate (LPR) pricing, the central bank announced on December 28, 2019 that it was clear that March 2020 From 1st to August 31st, the conversion of stock mortgage pricing benchmarks will be promoted. Customers can negotiate with financial institutions to decide whether to "change the anchor" to LPR or a fixed interest rate.
Bank of China, China Construction Bank, Industrial and Commercial Bank of China, Agricultural Bank of China, and Postal Savings Bank of China have previously stated that starting from August 25, the pricing of personal housing loans within the scope of batch conversion will be uniformly adjusted to LPR in accordance with relevant rules. The Bank of Communications stated that on August 21, it adjusted the pricing of personal housing loans within the scope of batch conversion to LPR.
Ms. Zhang bought a house in Beijing with a loan of RMB 970,000 in 2012. She told the Sino-Singapore Jingwei client that she has not many remaining loans, so she is more willing to try floating interest rates. If it is the loan just now, I am afraid that she will have to struggle with it. . But she also asked, what is the difference between fixed interest rates and floating interest rates?
The biggest difference is still reflected in the amount of repayment. As the name suggests, the mortgage interest rate under a fixed interest rate will remain at the current interest rate level, and the total repayment and monthly payment will be basically fixed, and will not change significantly due to external factors. However, if the overall interest rate environment declines, fixed interest rate repayments will still maintain a relatively high interest rate. After the conversion to LPR, the mortgage interest rate will change with the change of LPR, LPR goes down, the repayment amount decreases; LPR goes up, the repayment amount also increases.
It should be noted that if the bank converts customers in batches, they can request an adjustment according to their wishes. But as long as you make your own choice, whether you choose the LPR pricing method or the fixed interest rate, you have only one choice and cannot change it.
How will interest rates be calculated after "anchor change"?
What is the interest rate after the mortgage is "changed"? Can the monthly payment be reduced?
According to the central bank’s previous announcement, after the pricing benchmark for housing loans is converted to LPR, the added point value should be equal to the difference between the recent execution rate of the original contract and the LPR in December 2019 (which can be a negative value).
The Sino-Singapore Jingwei client calculated the account: Take the conversion of commercial personal housing loans as an example. For example, the borrower Xiao Wang enjoys a 10% discount on the benchmark loan interest rate (down 10%) when buying a house. The loan date is August 2015 On the 1st, the period is 30 years.
If Xiao Wang chooses to convert the pricing benchmark of this mortgage to LPR, based on the 5-year benchmark interest rate of 4.9%, the actual interest rate before the conversion is 4.9×(1-10%)=4.41%. The LPR over 5 years released in December 2019 is 4.8%. The addition and subtraction points for Xiaowang’s mortgage are 4.41%-4.8%=-0.39%, which means a 39 basis point reduction. The future mortgage interest rate will be LPR-0.39% . Until the mortgage is repaid, the plus or minus points remain unchanged, and the mortgage interest rate will change with the LPR over 5 years.
During the conversion, I and the bank need to negotiate to determine the addition and subtraction points, repricing date and repricing cycle. The repricing date is the time to recalculate the loan execution interest rate based on the latest pricing benchmark. There are generally two types, one is on January 1 of each year, and the other is "month to day" of the loan issuance date.
Yan Yuejin, research director of the Think Tank Center of E-House Research Institute, gave an example. If a buyer switches to LPR to calculate loans in August this year, and recalculates the monthly payment every subsequent year, the monthly payment from August to December 2020 will be the same as before this year. Same in July. In 2021, if the LPR of more than 5 years is increased by 5 basis points, the monthly payment will increase by about 31 yuan in the case of a mortgage of 1 million and a 30-year loan with equal principal and interest. Conversely, if the LPR for more than 5 years is reduced by 5 basis points, the monthly payment will be reduced by 31 yuan.
Which one is more advantageous?
Data map: The sales office sand table. Photo by Xue Yufei, Sino-Singapore Jingwei
Sino-Singapore Jingwei Client noticed that from December last year to August this year, the 5-year LPR changed from 4.8% to 4.65%, a decrease of 15 basis points. If it is a 2 million yuan mortgage, it will be paid off in 20 years with equal principal and interest repayment. A 15 basis point reduction means that the average annual mortgage expenditure can be saved by 1963.83 yuan, and a total of 39276.53 yuan can be saved in 20 years.
Does this prove that it is better to choose LPR floating rate pricing? Wen Bin, chief researcher of China Minsheng Bank, believes that if the loan period is short and the previous mortgage interest rate is relatively high, LPR can be chosen. If the term is longer and the loan interest rate itself was very low before, you can choose a fixed mortgage interest rate. Because this can lock in the cost of monthly payments, and better arrange the income and expenditure of individual families in the future, without affecting normal living arrangements due to changes in mortgage interest rates.
It can be seen that if the LPR is expected to rise, the monthly payment will also increase. For most people, it is difficult to judge whether the long-term trend of interest rates is going up or down. However, industry insiders believe that there is still room for short-term LPR decline.
Dong Ximiao, chief researcher of Zhongguancun Internet Finance Research Institute, said that in the short and medium term, my country's interest rates are in a downward trend. Converting existing variable-rate mortgages to LPR as the pricing benchmark is beneficial to borrowers and helps reduce borrowers' mortgage expenditures.
"In the second half of the year, mortgage interest rates may continue to fall, but the magnitude will shrink." Dong Ximiao said that it is expected that liquidity will remain reasonably sufficient in the second half of the year, LPR interest rates will continue to decline, and mortgage interest rates based on LPR interest rates will also follow the trend downward. (Zhongxin Jingwei APP)
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