What does it mean to choose one of the two mortgage interest rates? Is it cost-effective to convert your mortgage to LPR in 2020?

Is it cost-effective to convert the mortgage to LPR in 2020? In fact, it is still necessary to consider the remaining term of the personal mortgage. If the term is short, you can consider LPR. After all, the economic downturn and the epidemic will inevitably release liquidity. However, if the mortgage is more than ten years long and you don’t understand finance, it is better to choose a fixed one. Professional investors can consider it. If risks occur, they can also use derivatives to hedge risks.

What does it mean to choose one of two mortgage interest rates?

In short, the central bank has given mortgage holders a choice: should they choose a fixed interest rate or a floating interest rate of "LPR+plus points"?

Option 1: Fixed interest rate. After choosing a fixed interest rate, your mortgage will maintain the current interest rate level and will not be affected by changes in the LPR interest rate.

Option 2: "LPR+add-on" floating interest rate. LPR is the loan market benchmark rate, a new mechanism introduced by the central bank in 2019. LPR is announced once a month and can rise or fall. The add-on value = the current execution interest rate level of the original contract - the LPR released in December 2019. The add-on value is fixed after it is determined.

In other words, if you choose the "LPR+plus point" floating interest rate, your future mortgage interest rate will change with the LPR, which will affect the monthly payment.

It should be emphasized that the borrower has only one option and cannot convert again after conversion.

Is it cost-effective to convert your mortgage to LPR in 2020?

I think LPR is the first step to untie the real estate purchase restriction policy and return interest rates to market regulation. Once the current real estate policy is untied, there will still be a group of people with purchasing power rushing into real estate to push up interest rates, thereby suppressing house prices, and the cycle continues, with the goal of stabilizing the real estate market.

Second, LPR is independently targeted at mortgage loans, preparing for future interest rate cuts by the central bank to revitalize small and medium-sized enterprises.

Third, in the medium and short term, interest rates will rise. However, it will take a long time for the LPR rate to rise and then fall, and finally reach the same yield as the fixed interest rate. During this period, you have almost paid off your mortgage, and the remaining LPR will not bring much benefit. On the contrary, the previous increase in LPR has brought pressure on loan repayment funds.

Fourth, China is rising, and once the transformation is successful, it will definitely push up land prices. The same is true for the future industrial revolution.

So I think that a fixed interest rate is better. As the author said, there are too many unstable factors in LPR, and no one will cover the risks. Once risks arise, there will be a collapse.

What is the latest mortgage interest rate model?

1. At present, many banks have notified that the calculation method of all existing mortgage interest rates needs to be changed to the "LPR+points" model, starting from March 1, 2020.

2. LPR is based on the 5-year interest rate in the most recent month, plus BP points to calculate the mortgage interest rate. One basis point is 0.01%, which will affect the interest rates of both the first and second homes.

3. For commercial loans and provident fund combined housing loans whose loan contracts were signed before January 1, 2020 but for which the reference benchmark interest rate has not been issued, a new interest rate contract needs to be signed.

4. If the loan matures before December 31, 2020, there is no need to convert to the new interest rate model.

5. When applying, you need to bring your ID card to the corresponding loan bank to convert to the new interest rate model.

Related News

According to the announcement of the People's Bank of China, the pricing benchmark of existing floating rate loans will be converted from March 1 to August 31, 2020. This means that the pricing benchmark of existing commercial personal housing loans will also be converted. Borrowers can negotiate with banks to determine whether to choose a fixed interest rate or convert to LPR, which is the loan market quotation rate.