On the morning of December 28, the central bank issued an announcement that starting from March 1, 2020, financial institutions should negotiate with existing floating rate loan customers on the pricing basis conversion terms and price the interest rate agreed in the original contract. The method is converted to using LPR as the pricing basis and adding points.

It sounds a bit awkward. To put it simply, our previous loan contracts were priced based on the base interest rate + floating (or floating), and now we have to switch to LPR + basis point (or fixed interest rate) pricing. .

Of course, what is relevant to most people is mortgages.

The central bank stated in August that the existing personal housing loan interest rates will still be implemented in accordance with the original contract. Why has it changed again? After switching to the new pricing method, will the mortgage loan be more or less? The central bank has the answer.

It should be noted that this change does not include Provident Fund personal housing loans. After all, the Provident Fund personal housing loan interest rates are much lower than commercial loan interest rates.

The central bank made a major adjustment: converting the existing floating rate loan pricing benchmark to LPR

On August 17, 2019, the central bank issued an announcement on reforming and improving the loan market quotation rate (LPR) formation mechanism .

The central bank stated that currently nearly 90% of newly issued loans have been priced with reference to the LPR, but existing floating rate loans are still priced based on the loan benchmark interest rate, which cannot reflect changes in market interest rates in a timely manner and is not conducive to protecting the rights and interests of both borrowers and lenders. In order to further deepen the LPR reform, the People's Bank of China issued [2019] Announcement No. 30 to promote the smooth conversion of the pricing benchmark of existing floating interest rate loans.

According to the central bank’s announcement, existing floating rate loans refer to floating rate loans that have been issued by financial institutions before January 1, 2020 and that have been contracted but not issued and are priced with reference to the loan benchmark interest rate (excluding provident fund loans). personal home loan). Starting from January 1, 2020, financial institutions are not allowed to sign floating rate loan contracts that are priced with reference to the loan benchmark interest rate.

What are the principles for conversion of existing floating-rate loan pricing benchmarks?

First, the borrower can negotiate with the bank to convert the pricing basis to LPR or to a fixed interest rate. The borrower only has one option and cannot convert again after the conversion. Existing floating-rate loans that are in the last repricing cycle may not be converted.

Second, the conversion work will start on March 1, 2020, and in principle should be completed before August 31, 2020.

Third, the loan interest rate level after conversion shall be determined by both parties through negotiation. In order to implement the real estate market regulation requirements, the interest rate level of existing commercial personal housing loans at the time of conversion shall remain unchanged.

The central bank stated that the pricing basis for existing floating-rate loans will be converted to LPR. Except for commercial personal housing loans, the point value will be determined through negotiation between the borrower and the lender. The point-added value for commercial personal housing loans should be equal to the difference between the latest execution interest rate level of the original contract and the corresponding term LPR released in December 2019. From the time of conversion to the first repricing date thereafter (exclusive), the executed interest rate level shall be equal to the most recent executed interest rate level of the original contract, that is, the sum of the LPR of the corresponding period in December 2019 and the added point value. Thereafter, starting from the first repricing date, on each interest rate repricing date, the interest rate level will be recalculated and determined based on the LPR of the corresponding period in the most recent month and the added point value.

When negotiating the pricing basis conversion terms with customers, financial institutions can renegotiate the repricing cycle and repricing date. The shortest repricing cycle for commercial personal housing loans is one year.

If the existing floating-rate loan is converted to a fixed-rate loan, the interest rate level after conversion shall be determined by negotiation between the borrower and the lender. Among them, the interest rate level after conversion for commercial personal housing loans shall be equal to the most recent execution interest rate level of the original contract.

In addition to commercial personal housing loans, other existing floating-rate loans, including but not limited to corporate loans, personal consumption loans, etc., can be negotiated by the borrower and the lender in accordance with market-oriented principles to determine the specific conversion terms, including reference to the term of the LPR Variety, point value, repricing cycle, repricing date, etc., may be converted to a fixed interest rate.

This is how the new mortgage interest rate is calculated!

So, how to calculate the new mortgage interest rate? Will the interest rate change after conversion?

The central bank stated that if the pricing basis is converted to LPR, the term type of LPR will be determined based on the borrowing term of the original contract. Once determined, it will not be adjusted during the remaining term of the contract; the added value is the latest execution interest rate of the original contract and The difference in LPR in December 2019 (can be negative) will be fixed during the remaining term of the contract; the interest rate level at the conversion point will remain unchanged; the borrower and the lender can renegotiate the repricing cycle and repricing date, with the shortest repricing cycle for one year.

For the same commercial personal housing loan, if it is converted at any time between March and August 2020, the added point value will be determined based on the LPR in December 2019 and the original interest rate level, and the added point value will not be affected. The impact of the conversion time point can be reasonably decentralized by banks and customers. Currently, the repricing cycle of most existing commercial personal housing loans is one year and the repricing date is January 1 of each year.

For example, if the original contract term of a commercial personal housing loan is 20 years, the remaining term is 8 years, and the interest rate stipulated in the original contract is 10% higher than the benchmark interest rate for loans with a term of more than 5 years. The execution interest rate is 4.9% × (1+10%) = 5.39%. The LPR over 5 years released in December 2019 was 4.8%. If the borrower and the lender decide to switch the pricing basis on March 30, 2020, and the repricing cycle is still one year, and the repricing date is still January 1 of each year, then the point increase rate should be 0.59 percentage points (5.39%-4.8%= 0.59%). From March 30 to December 31, 2020, the implemented interest rate level is still 5.39% (4.8% + 0.59%). On the first repricing day thereafter, that is, January 1, 2021, according to the re-agreed repricing rules, the interest rate implemented will be adjusted to the LPR + 0.59% for a period of more than 5 years released in December 2020, and thereafter every year And so on.

To put it simply, in the first pricing cycle (usually 1 year), the new interest rate for housing loans is the same as the current interest rate. Therefore, the value of the basis point in the new interest rate (LPR + basis point) is the current The difference between interest rate and LPR, the basis point will not be changed once it is determined.

In addition, this change will also put a lot of pressure on banks. The central bank stated that from the date of the announcement, banks should formulate a work plan for the conversion of existing commercial personal housing loan pricing benchmarks as soon as possible, including system support, personnel training, etc., and at the same time, through multiple channels (including official website and branch announcements, text messages, emails, Mobile banking and telephone notifications, etc.) inform customers that, subject to consensus reached by both parties, changes to the original contract terms should be made as simple and feasible as possible.

The reduction in LPR is not to stimulate the property market

Although the interest rate remains unchanged in the first mortgage cycle, subsequent changes in LPR will have an impact on your mortgage repayments.

The mortgage interest rate generally corresponds to the 5-year LPR. According to data from the China Foreign Exchange Trading Center, the current quotation of LPR five years ago was 4.80%.

The last change in LPR quotation was on November 20: the 1-year variety dropped from 4.20% to 4.15%; the 5-year variety dropped from 4.85% to 4.80%.

Zhang Dawei, chief analyst of Centaline Real Estate, analyzed at the time that the reduction in the 5-year LPR means that for those who just need a 1 million loan for 30 years, the average monthly payment will be reduced by 30 yuan, and the total monthly payment will be reduced by 10,890 yuan over 30 years.

It is worth noting that the China Securities Journal previously reported that after the reform, LPR gradually became the benchmark for new loan pricing. LPR is linked to MLF interest rate, and changes in the latter have an important impact on LPR and thus on credit market interest rates. Faced with the successive reductions in the MLF interest rate and the central bank's reverse repurchase rate, some researchers believe that the interest rate cutting cycle may have begun.

CICC’s fixed-income research team pointed out that historically, the central bank’s reverse repurchase rate reductions usually do not end in one go, and a new round of interest rate reduction cycles may have begun.

Zhang Jiqiang of Huatai Securities said that there is room for MLF interest rates to continue to decline in small steps to guide LPR to continue to decline. However, relevant policy operations still need to prevent the "spread of inflation expectations" and "normal monetary policy" should be maintained.

However, the main purpose of lowering LPR is to guide the real economy to lower interest rates and reduce capital costs in the future, not to stimulate the property market.

As early as August, the central bank stated that after the pricing benchmark is converted, the interest rate for newly issued personal housing loans nationwide shall not be lower than the LPR of the corresponding period; the interest rate of the second personal housing loan shall not be lower than the LPR of the corresponding period. Add 60 basis points.

Content source: Daily Economic News Comprehensive Central Bank website, Meijing APP