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There is one news that has excited many people, and that is that mortgage interest rates have dropped!
This is undoubtedly good news for many people who buy a house, after all, the mortgage is the biggest expense for most families, and it is a little bit that can be saved.
But it also raises the question of whether to repay the loan early.
Some people believe that since the interest rate has fallen, they should take the opportunity to repay more principal to reduce interest expenses and pay off the loan early.
Others believe that since interest rates have fallen, they should pay less principal to increase cash flow for other investments or consumption.
So which is the more reasonable approach? To answer this question, I asked a classmate who works in a bank to tell me what he thinks.
1. Early repayment is not necessarily cost-effective
It is common knowledge that many people think that early repayment saves on interest.
But this common sense actually has a premise, that is, the loan interest rate is fixed.
If the interest rate on the loan is fixed, then early repayment can indeed reduce the interest expense, because the more principal you pay each month, the less principal you have left, and the less interest you have.
If the interest rate on the loan is fluctuating, then early repayment may not be cost-effective.
Because the more you repay the principal each month, the less principal you have left, but the interest rate may also change, and if the interest rate rises, then your interest will increase, which will increase your burden.
So is the mortgage rate fixed or floating? The answer is floating.
According to the current regulations, the interest rate of personal housing loans is determined according to the loan market prime rate plus points, while the LPR is announced once a month and will be adjusted according to market conditions.
In other words, your mortgage interest rate is not static, but will change as the LPR changes.
If the LPR goes up, your mortgage interest rate will go up, and if the LPR goes down, your mortgage rate will go down too.
So how will the LPR change? It depends on the central bank's policy.
Generally speaking, the central bank will decide whether to adjust the LPR according to the needs of the economic situation and monetary policy.
If economic growth slows down and inflationary pressures are not strong, the central bank will tend to lower the LPR to reduce the financing cost of enterprises and individuals, stimulate investment and consumption, and boost economic growth.
If the economy is overheated and inflationary pressures rise, the central bank will tend to raise the LPR to raise the financing cost of enterprises and individuals, curb investment and consumption, and control economic overheating and inflation.
The mainland's economy is generally running smoothly, but it still faces some downward pressure and structural problems, and inflation has also risen, but it has not yet gotten out of control.
As a result, the central bank's monetary policy remains sound and neutral, neither overtightening nor overly easing.
Instead, according to the actual economic and financial conditions, we should flexibly use a variety of monetary policy tools to maintain reasonable and abundant liquidity and guide market interest rates to be reasonable and stable.
You can't blindly assume that mortgage interest rates will always go down, and you can't blindly assume that early repayment will save money.
We should make reasonable decisions based on our actual situation, taking into account various factors.
Second, early repayment is not necessarily convenient
In addition to the issue of interest, many people also ignore the issue that it is not necessarily convenient to repay the loan early.
There are different rules and conditions for these two types of early repayment. In general, partial early repayment is subject to the following rules and conditions.
The application must be submitted to the bank at least 7 working days before the repayment date, otherwise the bank has the right to reject your application.
You can only make early repayments up to 3 times a year, otherwise the bank has the right to reject your application.
Your monthly repayment amount will not change after each early repayment, but your repayment period will be shortened, otherwise the bank has the right to adjust your repayment plan.
Early repayment is not a simple matter, but requires you to prepare in advance, comply with the bank's requirements, and bear certain risks and costs.
If you are not prepared, or do not comply with the bank's requirements, or cannot afford the risks and costs, then your early repayment plan may suffer and may even fail.
Secondly, you should know that early repayment is not something you can repay if you want to, but it depends on the attitude of the bank.
Why? Because early repayment is not a good thing for banks, it's a bad thing. Why? Because prepayment affects the bank's profits and asset quality.
Early repayment can affect the bank's profits. The main source of income for banks is interest income, which is the interest on loans.
If you repay the loan early, then the bank will receive a part less interest, that is, a part of the money will be less. This is a loss for the bank, a disadvantageous situation.
In order to compensate for this loss, the bank will charge you a certain amount of liquidated damages and handling fees to reduce the temptation of early repayment and also to protect your own interests.
Prepayment affects a bank's asset quality. The main asset of a bank is a loan, which is the money you owe to the bank.
epilogue
If the mortgage has dropped, should I repay the loan early? This is a question that many people are concerned about, and it is also a question that has no standard answer.
Different people, different situations, different choices, different results. We can't generalize, and we can't blindly follow the trend.
Instead, we should make a reasonable decision based on our actual situation, taking into account various factors.
Early repayment is not necessarily cost-effective, convenient, or necessary.
Of course, early repayment also has its benefits, such as reducing debt pressure, increasing net worth, simplifying financial management, enhancing psychological security, and so on.
If you have enough reasons, enough ability, and enough confidence, then early repayment is also a desirable option.
The key is that you are clear about your purpose, understand your own interests, understand your own risks, and make your own judgments.
If you have any different opinions or suggestions, please leave a message in the comment area.