The number of customers choosing to prepay their home loan this year has increased significantly compared to the past
Is it worthwhile to pay off the loan early?
"I went to the bank branch today to go through the loan repayment procedure, and there were more than a dozen people in line. I didn't expect to have to wait in line for early repayment." Mr. Zhang, a customer of a bank, felt incredible about what he saw.
Recently, a reporter from Beijing Youth Daily learned from a number of banks in Beijing that since this year, the number of customers who choose to repay their loans in advance has increased significantly compared with the past.
Why do so many mortgage customers choose to repay their mortgages early?
Is it worthwhile to pay off the loan early?
What factors need to be considered?
Are there any extra charges?
A reporter from Beiqing Daily recently conducted an investigation.
Repay 800,000 in advance and pay back 1.11 million in interest
Early loan repayment to save interest
Ms. Li bought a second home in 2019. The interest rate finally approved by the bank is 6.2%, the loan amount is 1.86 million yuan, the term is 25 years, the repayment method is equal principal and interest, and the monthly payment is more than 11,700 yuan.
This year, Ms. Li scrutinized the bank details and found that the interest in the original monthly payment accounted for more than 8,000 yuan, and the principal was only about 3,000 yuan. After three years of repayment, the principal was only 100,000 yuan less.
Looking at the high monthly interest, thinking about the losses of buying funds and stocks and the declining fixed deposit interest rate, Ms. Li decided to apply for early repayment of the loan.
After repaying 800,000 yuan in advance, Ms. Li's repayment schedule showed that the mortgage interest was reduced by 1.11 million yuan.
Excited, she shared the joy on social platforms: "I paid off the mortgage of 800,000 yuan in advance, and the interest was reduced by 1.11 million yuan. Isn't this more profitable than financial management?" She plans to save more money and strive to use the remaining principal next year. All returned, "completely freed".
Central bank data show that in February and April this year, residents' medium and long-term loans experienced negative growth, the only two times since statistics began in 2007.
This shows that the repayment of residential mortgage loans has been higher than the amount of new mortgage loans.
The Founder Securities Research Report pointed out that the ability of residents to repay their mortgages ahead of schedule comes from the high savings rate.
Under the impact of the epidemic, the economy is weak and residents' income is under pressure. It is reasonable to say that there is no room for repayment of mortgages in advance.
However, because household consumption is declining faster, this keeps households' savings rate at a high level.
With the repeated epidemics, residents' confidence in the future economy and income growth expectations have weakened, and their demands for risk prevention have increased, thereby increasing their savings.
Savings rates are high, and residents' ability to repay their mortgages has increased.
"The increase in residents' willingness to repay their mortgages ahead of schedule is due to the lower return on low-risk assets and the high rigidity of mortgage interest rates." Zhang Wei, a fixed income analyst at Founder Securities, pointed out that since the beginning of this year, the yields of cargo-based and wealth management products as deposit alternatives have increased. also gradually decline.
As of April 11, the yield of wealth management products in the whole market was 2.8%, falling below 3%.
In the face of the weighted average interest rate of housing loans of 5.5%, the gap between the return on assets and the cost ratio of liabilities continues to widen, and residents are more willing to repay their mortgages ahead of schedule.
Mortgage rates below 5.7%
Early repayment may not be worthwhile
Mortgage interest rates are higher than wealth management yields. Is it worthwhile to repay the loan early?
Founder Securities Research Report, for example, believes that this is not the case.
Assuming that some residents bought a house in October 2018, they need to repay a commercial loan of 1 million yuan, the loan period is 30 years, and the mortgage interest rate is 5.7%.
This time point is the absolute high of mortgage rates in the new round of real estate upward cycle in 2016.
Residents face two choices: one is to use cash to pay off their mortgages in one go; the other is to buy wealth management products.
If you choose option 1, you can calculate the last one-off repayment (26 years remaining) of 949,400 yuan through the mortgage calculator, saving 861,400 yuan in interest.
The average annual interest savings is 33,100 yuan.
The second option is to use 949,400 yuan for financial management. According to the current annualized rate of return of 3% to 4%, the annual income can be 28,500 to 38,000 yuan.
Through the above cases, Founder Securities Research Report believes that when the wealth management rate of return is 3.5%, the income saved by early repayment of the mortgage interest rate of 5.7% is basically equal.
This means that if your financial yield is higher than 3.5% or your mortgage rate is lower than 5.7%, it may not be worthwhile to pay off the loan early.
However, Founder Securities also pointed out that it is not possible to directly compare mortgage interest rates and wealth management yields, and it is necessary to jointly evaluate multiple factors such as repayment time period, repayment method, and number of repayment periods.
The current situation of early loan repayment may also indicate that residents are skeptical about whether they can guarantee an annual financial income of 3% to 4% in the long run.
However, industry insiders pointed out that although the wealth management yield is on the downward trend, there is also room for reduction in the interest rate of mortgages linked to LPR.
The current lower limit of the mortgage interest rate for the first home in the country is 4.25%.
In March, the national average interest rate for first-home loans was 5.28%, and the first-home loan interest rate theoretically still has a large room for reduction.
Someone repaid early but regretted it
Prepayment of loan should be considered comprehensively
A reporter from Beijing Youth Daily learned that after repaying the loan early, many people felt that the monthly burden was lighter and easier; however, some people felt regret.
Mr. Zhao, who lost his job because of the entire department being laid off, has been very upset recently.
He has always thought his mortgage rates were too high.
At the end of last year, thinking that the year-end bonus was about to be credited to the account, and the financial management of 500,000 was due soon, he chose to repay the loan early without hesitation.
However, after the Spring Festival, the company went from bad to worse, and the promised year-end bonus disappeared for a long time, and finally there was no job.
There is not much "surplus food" at home, and the monthly payment is still going on. Mr. Zhao can only look for a job non-stop, and sometimes he has to travel to several places a day.
When he was anxious and exhausted, he always thought: "If I didn't pay back the 500,000 at the end of last year, would I be more relaxed now?"
Mr. Chen, a financial planner from a large state-owned bank, reminded everyone that no matter whether they choose to repay the loan in advance, each family must maintain a relatively sufficient cash flow to cope with various changes. Just make yourself very passive.
If the mortgagee has financial needs within a year, such as housing renovation and other large expenses, early repayment may be detrimental to the family's financial arrangements.
In addition, for borrowers with a long repayment period, because most of the repayments in the later period of the loan period are repayments of the principal, at this time, the effect of saving interest by repaying the loan early is not very effective.
Mr. Chen believes that if the borrower uses the equal principal and interest repayment method to repay the loan, if the loan period has exceeded one-third of the time, for example, the loan has been repaid for more than 20 years, and the loan has been repaid for more than 7 years.
hint
Advance loan repayment by appointment
Generally free of charge in Beijing
A reporter from Beiqing Daily learned that all banks require customers to make an appointment to repay loans in advance. The specific process varies greatly among banks. Some can be handled completely online, while others need to go to the outlet to sign at the counter.
Customers are advised to contact their loan manager or loan branch to ask for details before applying.
As for the charges that everyone is concerned about, relevant persons from mainstream banks in Beijing, such as ICBC, China Construction Bank, Bank of China, Agricultural Bank of China, Bank of Communications, and China Merchants Bank, said that they will not charge any fees.
However, some readers reported that they had done early repayment at the Beijing branch of a national joint-stock bank in March.
At that time, the loan manager said that he had to go to the outlet to get his signature first. After the full payment was received, it would be deducted in about 15 working days. There would be a penalty for early repayment within one year, and it would not be used for more than one year.
After repaying the loan early, what happens to the subsequent repayments?
It is understood that most banks will provide two options, one is to keep the monthly payment unchanged and shorten the term, and the other is to maintain the same term and reduce the monthly payment.
The former will save more interest and can end the repayment as soon as possible; the latter will reduce the pressure of monthly repayments, and lenders will be much more relaxed.
Customers can choose according to their actual situation.
This group of articles / our reporter Cheng Jie