According to the requirements of the central bank, starting from March 1 2020, financial institutions should negotiate with existing floating-rate loan customers about the conversion terms of the pricing benchmark, and convert the interest rate pricing method agreed in the original contract into an LPR pricing benchmark plus item (the plus item can be negative), and the plus item will remain unchanged during the remaining period of the contract; It can also be converted into a fixed interest rate.
In short, the central bank has given mortgage borrowers a multiple-choice question-whether to choose a fixed interest rate or a "LPR+ plus" floating interest rate.
Why should mortgage interest rates be converted?
Reason: interest rate marketization. According to the benchmark interest rate announced by the central bank in the past, banks will give certain discounts or interest rates rise according to specific conditions, such as whether they belong to the first set or the second set, but the benchmark interest rate rarely changes, so it cannot reflect the market demand for funds in time.
LPR is an objective quotation made by more than a dozen financial institutions according to the market demand for funds, and then the average is taken. Recently, the market funds are relatively tight, and interest rates will naturally rise. If the market is relatively abundant, interest rates will naturally fall. In addition, the publication of LPR in January is more timely.
In addition, LPR is conducive to economic development and control of the real estate market. Bank loans include loans other than mortgages. If LPR falls, it will help to support the development of the real industry. The composition of mortgage is LPR+ fixed basis point, that is to say, even if LPR goes down, the central bank can control the mortgage interest rate at a certain level by increasing fixed points to achieve the regulatory goal of not speculating in real estate.
How to change the mortgage interest rate?
There are two ways to calculate the converted interest rate, one is fixed, and the other is LPR+ floating basis point. Fixed interest rate means that one interest rate will be used in the future until the loan is paid off, and LPR+ floating basis point will be more brain-burning, so how should these two be converted?
Officially, this interest rate conversion adopts the principle of "equivalent conversion", calculates the bonus value by using the existing interest rate level, and converts "benchmark interest rate fluctuation" (multiplication) into "LPR bonus" (addition). On the calculation idea of converting into fixed interest rate, the converted interest rate level is equal to the current execution interest rate level of the original contract, and the interest rate level is fixed during the remaining term of the contract.
The above content is too difficult to understand, and it may be more intuitive to give an example on the road.
New interest rate =LPR+ integral
For example, you have signed a mortgage interest rate before, and it is the first set, which can be discounted. The discounted contract interest rate is 4%. At present, the quoted interest rate of LPR is 4.8%. After conversion, add some values for calculation:
4%-4.8%=-0.8%。
Then after conversion, your new interest rate is 4.8%-0.8%=4%.
Remember, this "-0.8%" will not change in the rest of your repayment time. If LPR becomes 7%, your repayment rate is 6.2%.
Similarly, if you signed a contract before, the interest rate is 5.5%.
The converted added value is 5.8%-4.8%= 1%. The converted interest rate is 4.8%+ 1%=5.8%. Similarly, "1%" will not change during the remaining repayment period. If LPR becomes 7%, your repayment rate will be 8%.
Fixed rate VS floating rate, which is more cost-effective?
According to the regulations, the conversion can only be applied for 1 time, so which interest rate is more cost-effective to choose a fixed interest rate or a floating interest rate?
Dalu thinks that in the past, when the signing discount was strong (for example, banks encouraged mortgage loans, and the discount could be 20% or even 30%), it was better to use floating interest rates.
If the remaining mortgage term exceeds 10 years, there is little difference, and you can choose a fixed interest rate.
The reason is:
1, economic operation is cyclical, and interest rates will fluctuate according to this cycle, including interest rate increase cycle and interest rate reduction cycle. If the repayment takes 20 or even 30 years, it may take several cycles, and the cheap you earned and the interest you paid may cancel each other out.
2. In the short term (at least 1, 2 years), there is room for downward adjustment of China's interest rate trend. Compared with other developed countries, Europe has negative interest rates, while Japan and the United States have low interest rates. In order to accelerate the economic development of China, there is still room for lowering interest rates. Therefore, the probability of LPR reduction in 10 years is still quite large.