"New Rules: Unified Cut in Existing Mortgage Rates by Month-End"

Less than two weeks after the initiative to adjust the interest rates on existing mortgages was announced at the end of September, several banks have recently released detailed adjustment rules.

According to these rules, the interest rates on existing mortgages will be uniformly adjusted by the end of October. In many places, the lower limits for loan interest rates for first and second homes are the same, both set at LPR (Loan Prime Rate) minus 30 basis points, which is below the standard for existing mortgages that will not participate in this adjustment.

The journalist noticed that currently, in places like Beijing, Shanghai, and Shenzhen, the lower limit for second-home loan interest rates is still higher than that for first homes. If the conditions for "converting second homes to first homes" are not met, the adjustment of second-home loan interest rates in the corresponding areas will be based on the policy lower limit. At the same time, due to different loan repricing dates, the specific adjustment times for different customers will also vary. Several interviewed individuals have indicated that this round of interest rate cuts for existing mortgages not only reduces the repayment pressure on homebuyers but also helps alleviate the pressure of early repayments, reduces the risk of credit defaults, and promotes financial stability.

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Both first and second homes are applicable.

In fact, for the adjustment of existing mortgage interest rates, the initiative released by the central bank at the end of September this year, guiding the market interest rate pricing self-discipline mechanism, has already clarified that the main commercial banks should release operational details no later than October 12th and should uniformly adjust the interest rates on existing mortgages (including first and second homes and above) in batches by October 31st.

According to the details released by several banks recently, this adjustment mainly targets existing mortgages with interest rates higher than LPR minus 30 basis points, with the adjustment mostly being reduced to this interest rate level.

Currently, the LPR for more than five years is 3.85%. Based on this calculation, the interest rate on existing mortgages will be uniformly adjusted to 3.55% before the end of the month.

Since the lower limits for first and second home loan interest rates are the same in many places, first and second homes that meet the conditions will participate in this loan interest rate adjustment. Several banks have stated that there is no need for customers to apply, and the adjustment will be made uniformly before the end of October. However, for loans that are currently priced at a fixed or benchmark interest rate, customers need to actively apply to convert to a floating interest rate pricing to participate in this adjustment.

It is worth noting that if the current mortgage interest rate is already below LPR minus 30 basis points, it will not participate in this adjustment, and commercial properties such as commercial and residential properties and shops are also not within the scope of this adjustment. At the same time, due to the loan repricing date agreed upon at the time of loan issuance, which could be the loan issuance date or January 1st of the following year, the adjustment time for different customers' loan interest rates may vary.

"The types of mortgages involved in this adjustment are extensive, including first and second homes. The policy implementation pace and the execution time of various commercial banks are relatively tight, which will have a more positive effect on stabilizing market expectations," said Chen Wenjing, Director of Policy Research at the China Index Academy. The central bank previously required that the mortgage interest rate repricing cycle be at least one year, and recently clarified that this restriction will be lifted, which is beneficial for facilitating the transmission of monetary policy.The recent announcement by the central bank clearly states that from November 1, 2024, the floating interest rate mortgages newly contracted under the contract will be consistent with the rest of the floating interest rate loans excluding mortgages, and the repricing cycle can be determined by the lending and borrowing parties through negotiation. Eligible existing mortgage borrowers can also adjust the repricing cycle while negotiating with commercial banks to adjust the interest rate加点幅度.

In addition, the aforementioned announcement also clearly allows for changes to the加点幅度 of mortgage interest rates based on the LPR, and the lending and borrowing parties can adjust the加点幅度 through negotiation and contract adjustment.

There are slight differences in various regions.

For this adjustment, the corresponding initiative not only clearly defines the lower limit of adjustment as LPR-30BP but also clearly states that it should not be lower than the current lower limit of the加点幅度 of newly issued commercial personal housing loans in the city where the loan is located.

At present, Beijing, Shanghai, and Shenzhen have not yet canceled the lower limits of mortgage interest rates for the first and second sets of houses. The lower limit of the loan interest rate for the first set of houses is lower than the lower limit of this adjustment, and the second set varies due to regional differences. Therefore, the adjustment of the loan interest rate for the second set of houses in the corresponding cities is also different from other cities.

Specifically, if the second set of house loans in the aforementioned cities meets the conditions for transferring to the first set, this adjustment requires the customer to contact the loan bank to handle the "second set to the first set" first. After approval, the interest rate will be reduced to LPR-30BP. If the corresponding conditions are not met, according to the current lower limit of the loan policy for the second set of houses in the corresponding city, Beijing outside the Fifth Ring Road will be adjusted to LPR-25BP, and inside the Fifth Ring Road will be adjusted to LPR-5BP; the Shanghai Free Trade Zone Lingang New Area and Jiading, Qingpu, Songjiang, Fengxian, Baoshan, Jinshan District will be adjusted to LPR-25BP, and other areas will be adjusted to LPR-5BP; Shenzhen will be adjusted to LPR-5BP throughout the jurisdiction.

However, compared with the current main loan interest rates, the corresponding adjustments will also reduce the pressure on residents to repay loans. For example, the current interest rate for the second set of existing mortgages outside the Fifth Ring Road in Beijing is 4.9%. After the adjustment, it can be reduced to 3.6%, a decrease of 130BP. Calculated based on a loan of 2 million yuan with equal principal and interest repayment, a loan period of 30 years, the monthly payment will be reduced by 1521.6 yuan, and the total interest will be reduced by 548,000 yuan.

If the mainstream mortgage interest rate in the current second-tier cities is calculated without adding points to the LPR, assuming that the LPR for more than 5 years remains unchanged at 3.85%, the adjusted mortgage interest rate will decrease by 30BP. Calculated based on a loan of 1 million yuan with equal principal and interest repayment, a loan period of 30 years, the monthly payment after the adjustment will be reduced by about 170 yuan, and the total interest will save about 61,000 yuan.

"The adjustment of the existing mortgage interest rate this time can reduce the pressure of loan repayment, stimulate housing consumption, and boost market expectations." Guan Rongxue, a senior analyst at Lin Ping Living Big Data Research Institute, believes that this adjustment of the existing mortgage interest rate is also an important part of the central bank's series of stable economic policies, which helps to reduce the risk of credit default and promote financial stability.