"China Economic Weekly" reporter Ma Mingyue | Beijing report
"Successful early repayment! You don't have to work for the bank anymore!"
In August this year, Yu Yan paid off her 1.3 million yuan mortgage and excitedly shared her feelings on social media.
Previously, after the LPR was lowered, her mortgage interest rate was 5.7%, and her mortgage dropped from 7,669 yuan to 7,549 yuan per month. She repaid 31 times, a total of more than 230,000 yuan, and only repaid the principal of more than 40,000 yuan.
"It's better to pay it off all at once."
Recently, Yu Yan sold the first house she bought in 2014, with more than 2 million yuan in cash.
She looked at the current income of many wealth management products that did not reach 4%, and together with her husband, she readily settled the mortgage on another house ahead of schedule.
It took 10 days from application to repayment, and no penalty was paid.
"After repaying the mortgage, there are still several hundred thousand yuan left. I have been looking at financial products for the past two days. 4% of the income is also very risky, and it is linked to stocks. The risk-free cash products have only a return of 2.5%." Yu Yan As soon as his post was published, it was followed and discussed by thousands of people.
Since the beginning of this year, more and more people, like Yu Yan, have chosen to repay their mortgages in advance.
Some people think that if they are not good at financial management, the hundreds of thousands or even millions of yuan in interest saved by repaying early is the best financial management; some young people believe that repaying the mortgage early can reduce the risk of future job changes. Anxiety can not only relieve stress, but also achieve "workplace freedom" in the future. After all, debt-free and light-weight.
Is it really worth paying off your mortgage early?
For a long time, the view that "prepayment of mortgages is typical of poor people's thinking" is very popular.
The reason is that a home loan is the loan with the largest amount, the longest time and the best interest rate that an ordinary person can borrow.
In the face of inflation and currency devaluation, the repayment pressure will become smaller and smaller in the future. Repaying the loan early is "giving money away" to the bank.
Now, more and more people are doing the opposite.
CICC's recent research report "Interpretation of Economic Data and Asset Allocation in July" mentioned that in July, residents' medium and long-term loans increased by 248.8 billion yuan year-on-year, and the increase for 8 consecutive months was mainly due to the risk of housing delivery and the purchase of houses by residents. Factors such as weaker demand and more early repayments.
Han Xiuyun, an associate professor of the Department of Economics at the School of Economics and Management of Tsinghua University, mentioned in a recently released video on "Should you repay your mortgage early?" The national housing loan decreased by 60.5 billion yuan in April, a decrease of 402.2 billion yuan year-on-year.
This is the second negative monthly growth of housing loans this year, and the second negative growth in history. The last time was in February this year.
"Inflationary currency depreciates, so the longer the loan is, the better, but this is determined based on the overall growth trend of the economic situation." Dr. Chen Yun from the Applied Economics Postdoctoral Workstation of Zhejiang University of Technology told a reporter from China Economic Weekly, "In recent years, , Under the influence of the epidemic, inflation has not waited, and layoffs and dismissals will come first. If there is spare money in hand, repaying the loan early is equivalent to cashing out a financial investment with an annualized rate of return of 5%.”
"In today's investment environment, there are few products with higher returns. The stock market fund has been green since the beginning of the year, which has further weakened the public investment channels. If the house is self-occupied, the benefits of early loan repayment are even more obvious. After all The mortgage has always been held, and the cost of capital is cumulative, which will offset the profits obtained by the real estate transaction in the future." Chen Yun said.
Han Xiuyun said: "The financial market is very risky this year. The sharp fluctuations in the stock market have caused many investors to suffer heavy losses. It is not uncommon for investors to lose 20% or 50%. Some time ago, many banks lowered the yields of wealth management products, and the yields of purchasing wealth management products were reduced. It is difficult to think of more than 4%. Nowadays, most of the bank mortgage interest rates are more than 5%, so it is better to deposit money in the bank to repay the mortgage in advance.” Han Xiuyun believes, “Based on the short-term reality, use the money in your hand to repay the mortgage. , paying less in bank interest is equivalent to making money.”
Stuck on early repayment?
However, many people also encountered some obstacles when repaying in advance. For example, they need to pay the bank's interest ranging from 1-6 months; the bank said that "the repayment amount is insufficient and needs to make an appointment for a few months"; restricting early repayment The number of repayments, such as twice a year; there are also phenomena such as closing the early repayment function on the grounds of technological upgrades.
A Xing from Anhui is very envious of Yu Yan's early repayment and not paying the bank liquidated damages. When she bought a house, she borrowed 890,000 yuan from the Bank of China at an interest rate of 5.68%.
She planned to repay the principal of 260,000 yuan in advance, but was told by the bank that she would have to pay a penalty of 3,700 yuan, and she could only repay in advance once a year.
Although Ah Xing felt that the liquidated damages of 3,700 yuan was a bit too much, considering that it is difficult for ordinary office workers to outperform the mortgage interest, the only way to save money is to repay it in advance.
After repaying the principal of 260,000 yuan, the default repayment period of the bank remains unchanged, the monthly payment is reduced, and the monthly payment is 1,500 yuan less than before.
"Now that the economy is in a recession, it is true to reduce the monthly payment and save more cash." Axing said.
Is it reasonable for banks to charge liquidated damages?
According to Article 26 of my country's "Regulations on the Administration of RMB Interest Rates": The borrower repays the loan in advance, and the lender has the right to charge the borrower interest according to the original loan contract.
"If the loan contract stipulates liquidated damages for early repayment, then it is not illegal for the bank to charge liquidated damages. Therefore, when applying for a loan, you must read the terms of the contract clearly." A bank employee told the "China Economy" "Weekly" reporter, "In the past, there were cases in which customers repaid 1.4 million yuan in advance and paid nearly 40,000 yuan in liquidated damages. Therefore, when repaying in advance, it is necessary to consider whether the liquidated damages are within the acceptable range."
The bank practitioner told reporters that at present, there is no clear regulation on the collection of liquidated damages for early repayment by various banks, and not all banks need to pay liquidated damages for early repayment.
The regulatory authorities have gaps in this regard. If you want to repay the loan early, you can negotiate with your lender.
Don't blindly follow suit
Some point of view reminds that at the moment, repaying the mortgage early seems to be a good choice, but not everyone has the ability to repay the loan early, and it is necessary to evaluate whether it is safe and cost-effective to repay the loan in advance according to their own situation, and do not blindly follow the trend.
"Especially young people, working and living in big cities are burdened with great pressure on mortgage loans, which affects their happiness in life. Therefore, after seeing some low-interest financing channels, they are very excited, and even want to increase leverage to repay mortgages ahead of schedule. This kind of behavior must be prudent. In our daily research, we also found that some young people have fallen into the financial fraud trap woven by illegal financial institutions in order to reduce financing costs." Chen Yun said.
If I don't have the money to repay the mortgage early, is it a loss?
Han Xiuyun believes that at the bottom of the economic cycle, everyone has panic and uncertainty about future expectations, which has led to a boom in repaying mortgages ahead of schedule.
But the epidemic will eventually pass, and the economy will return to normal.
"Now there is no prepayment and no loss, especially many people use provident fund loans to buy houses. Most urban provident fund loans have an interest rate of 3.25%. In the long run, this investment is more valuable."
Han Xiuyun said: "Faced with short-term uncertainty, it is okay for those with some spare money to repay the loan in advance, or repay part of the mortgage, but it should be noted that this premise is that the period of equal principal and interest repayment does not exceed the repayment period. 1/3 of the repayment period, and the repayment period of the equal principal does not exceed 1/2 of the repayment period. For example, for a loan of 30 years, the repayment period of the equal principal and interest does not exceed 10 years, and the repayment period of the equal principal does not exceed 15 years. There are many uncertainties in the current economy, and a certain amount of cash flow must be held in hand. If the period is exceeded, the risk factor will increase."
"If we look at the 30-year long-term cycle, the current economic winter is temporary. It is not too late to maintain sufficient cash flow and wait for the dawn to make choices." Han Xiuyun said.
(Yu Yan and A Xing are pseudonyms in the text)