The conversion of pricing benchmarks for existing floating-rate loans was launched as scheduled on March 1. But some people are not very clear about how the loan interest rate is calculated after conversion. To facilitate understanding, we will take the conversion of commercial personal housing loans as an example to illustrate the calculation method of adding and subtracting points during conversion and the actual interest rate level after conversion. (Other loans such as corporate loans are different from home loans. Please consult the lending bank for details)

1. How are the points added and subtracted?

According to Announcement No. 30 of the People's Bank of China [2019], after the pricing basis of housing loans is converted to LPR, the added point value should be equal to the difference between the most recent execution interest rate level of the original contract and the LPR in December 2019 (can be is a negative value). In the past, floating rate loans were generally determined by floating the loan base interest rate by a certain ratio. So what are the plus and minus points after conversion corresponding to the interest rates under different floating ratios?

For example, the borrower Xiao Wang enjoyed a 10% discount (minus 10%) from the base loan interest rate when buying a house. The loan date was August 1, 2015, and the term was 20 years.

If Xiao Wang chooses to convert the pricing basis of this mortgage to LPR, the current 5-year loan base interest rate is 4.9, and the actual execution interest rate before conversion is 4.9×(1-10)=4.41. 2019 The LPR above 5 years released in December was 4.8. According to the principle that the interest rate remains unchanged at the time of conversion, the points added and subtracted for Xiao Wang's mortgage loan are -0.39=4.41-4.8, which is a subtraction of 39 basis points.

Thereafter, until the mortgage loan is repaid, the points will remain unchanged, and the mortgage interest rate will change with the change of LPR for a term of more than 5 years. The number of addition and subtraction points corresponding to other common floating ratios is shown in Table 1.

2. What is the interest rate for monthly repayment after conversion? What are the effects of choosing different conversion timings?

First of all, you need to understand three concepts:

Conversion time: the time to convert the pricing basis of personal mortgage loans to LPR (between March 1 and August 31, 2020 between). When converting, you and the bank need to negotiate and determine: first, the number of points to be added or subtracted, see Part One for specific calculation methods; second, the repricing date and repricing cycle.

Repricing date: refers to the time when the loan execution interest rate is recalculated according to the latest pricing basis (loan benchmark interest rate before conversion and LPR after conversion). Generally, it is January 1 of each year, or the date corresponding to the loan disbursement date each year.

Repricing cycle: the cycle in which execution interest rates are redetermined. If mortgage interest rates change every year, then the repricing cycle is one year.

After the pricing basis is converted to LPR, the interest rate will not change before the first repricing date, and may only change with the current LPR starting from the first repricing date. The repricing date and repricing period can be stipulated in the original contract, or can be re-agreed by the borrower and the lender. The shortest repricing period for mortgage loans is one year.

If the repricing date is January 1 of each year, then the interest rate in 2020 will remain the same as the original contract interest rate if it is converted at any time from March to August 2021. Starting from the 1st, the LPR in December 2020 will be used as the basis plus or minus points to determine the interest rate for the current year, and so on for subsequent years. If the re-pricing date is the corresponding day of loan disbursement each year, then according to the conversion announcements of most banks, if the re-pricing date is converted before the re-pricing date, the interest rate can be determined by referring to the latest LPR released on the re-pricing date in 2020; if the re-pricing date is converted after the re-pricing date , you need to wait until the repricing date in 2021 to determine the interest rate with reference to the latest LPR release.

Continuing the above example, assume that the LPR of 5 years and above from March 2020 to July 2021 is 4.75 (the actual situation is likely to change, depending on the LPR quotation at that time):

(1) If Xiao Wang’s mortgage repricing date is January 1 every year, there will be no difference in conversion from March to August 2020. Before January 1, 2021, his execution interest rate will be 4.8- 0.39=4.41, that is, LPR (4.8) plus fixed spread (-0.39) over 5 years in December 2019; after January 1, 2021, it becomes 4.75-0.39=4.36, where 4.75 is December 2020 LPR of more than 5 years; and so on for subsequent years.

(2) If the repricing date is the loan issuance date (i.e. August 1 each year), if Xiao Wang converts before July 31, 2020, after the conversion, the mortgage will be The execution interest rate is 4.41; after August 1, 2020, it is 4.75-0.39=4.36. The 4.75 here is the LPR of more than 5 years in July 2020; and so on for subsequent years.

If Xiao Wang switches after August 1, 2020, the execution interest rate of this mortgage will remain unchanged at 4.41 until July 31, 2021; 4.75 will not be implemented until August 1, 2021. The interest rate of -0.39=4.36, where 4.75 refers to the LPR of more than 5 years in July 2021; and so on for subsequent years.