Most Chinese people have a habit of not liking debt. Take buying a house as an example. If you do the math, it would be uneconomical to take out a loan for such a long time and cost tens or even millions in interest. Therefore, many people would rather borrow from relatives, live frugally, squeeze out a higher down payment, or shorten the loan period. Doing this is to pay less interest and be debt-free.

This seemingly economical approach has put many people in a development crisis. Long-term debts and short-term repayments will inevitably lead to a decline in the quality of life for a period of time and narrow development opportunities. Most people who buy their first home are around 30 years old, which is the most critical period for career development. Faced with heavy short-term debt repayment pressure, many people miss out on career development opportunities. Even from the perspective of accounting, this idea is a completely static view of wealth figures and belongs to the old almanac.

The longer the loan period, the greater the interest pressure. Why is it recommended to extend the loan cycle?

For a first-time home, why should you pay as little down payment as possible and extend the loan cycle as much as possible?

Because first home loans are basically the types of loans with lower interest rates that can be found in China’s financial market, the current benchmark interest rate for loans over five years is 4.9. According to the central bank's policy, the first home is discounted by 15% off the benchmark interest rate, which is 4.17. The provident fund interest rate is even lower, equivalent to 30% off the benchmark interest rate, and the first home is only 3.25.

According to national policy, the interest rate for second-home loans is floating upward, from the original 8.5% discount to 1.1 times. Therefore, the interest rate of the preferential loan for the first home is a benefit. If you do not enjoy it, it is a typical case of pushing the money out the door.

Some people will say that although there are discounts on loans, the interest rate pressure is great because the loan is so large and the time is so long. This problem can be solved with a simple calculation. It’s the same 1 million. If you use it to make an extra down payment, you’ll just save an interest rate of 4.17. In other words, as long as the return rate of 1 million exceeds 4.17, it is a good deal, and the difference in the middle is the profit.

We use public bond funds with relatively small risk coefficients for comparison. According to statistics, as of the end of September this year, 77 fund managers have been managing a bond fund for more than three years. What is the performance of these long-distance runners? Two bond funds have a cumulative return rate of more than 100 in the past three years. The average return of these 77 individuals is Most are between 20 and 40. From this point of view, if you choose one or two established fund managers, you have a high probability of making money.

In addition to buying low-risk bond funds, if you have ample investment time, you can adopt a fixed investment strategy. In the next 30 years, it will not be difficult to obtain an annual investment return of 8 without fear of bull-bear transition. Defeat bank loan interest rates.

(The above answer was published on 2016-12-28, please refer to the actual relevant current house purchase policies)

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