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In recent years, the domestic real estate industry has cooled down a lot. Even if many real estate companies compete or sell at reduced prices in disguise, many people's willingness to buy houses is not high.
Under the influence of the property market control policy, the current mortgage interest rate is declining, and has fallen to below 4%. This is obviously an effort made by the state to increase the willingness of ordinary people to buy houses.
But for those who buy a home at a higher mortgage rate of 5.88, they will inevitably feel unbalanced. For these people, what should they do in the face of mortgage interest rates that may continue to fall?
1. The LPR for more than five years will be reduced to less than 4%.
The mortgage interest rate is the interest rate used to purchase a home loan, which is an additional fee that buyers need to pay when applying for a loan from a bank or other financial institution to buy a house.
Therefore, the level of mortgage interest rate also directly affects the future repayment pressure of home buyers and the overall cost of home purchase, which is a major factor affecting home buyers' willingness to buy houses.
The mortgage interest rate is not static, and its specific establishment and adjustment are mainly affected by the People's Bank of China and major commercial banks.
For example, the People's Bank of China regularly publishes the loan market's prime rate, also known as the LPR.
Major commercial banks also determine specific mortgage interest rates according to the LPR, as well as their own capital costs and risks.
Normally, when the LPR is lowered, it is in response to the needs of macroeconomic policy. Reduce the financing cost of the real economy, and then achieve the purpose of stimulating economic growth.
In the current context of increasing downward pressure on the economy, the LPR reduction can be effectively reduced. Corporate and personal debt burdens, promoting financing and consumption, and stimulating economic growth.
In recent years, with the recovery of the domestic economy and the moderate easing of monetary policy, the mortgage interest rates of major commercial banks have shown a steady and declining trend. At the same time, it also provides other more favorable loan terms for home buyers.
On February 20, 2024, the Bank of China announced that the LPR with a maturity of more than five years would drop from 4.2% to 3.95%, with an overall decline of as much as 25 basis points. This is the largest reduction since the reform of the LPR mechanism in 2019.
The five-year LPR has always been an important reference for mortgage interest rates, and when it is lowered, it means that the cost of borrowing for consumers will be reduced. The financing cost of enterprises will also be reduced, which in turn will improve the future earnings expectations of listed companies, boost stock market cash, and attract more capital into the stock market.
The decline in LPR for more than five years is more than market expectations. After all, since the reform of the LPR mechanism in 2019, it has taken more than four years to reduce from the original 4.8% to 4.2%, with an average annual decline of 15 basis points.
Even in the midst of three years of the pandemic, it has never fallen by more than 20 basis points. This time, it fell by 25 basis points, bringing the five-year LPR below 4.0%.
This can be regarded as a New Year gift package given by the central bank to everyone after the beginning of spring. It is believed that it can be a good way to boost market confidence and reduce the cost of existing debt.
2. The impact of the decline in mortgage interest rates on buyers with high interest rates
As the LPR for more than five years falls below 4%, the group that originally bought a house at a higher interest rate will be greatly affected. Its impact is mainly concentrated in the following aspects:
The first is the economic aspect. The most immediate consequence of high interest rates is an increase in monthly payments. People who buy homes during periods of higher interest rates have a relatively high monthly mortgage payment, which undoubtedly increases their financial pressure.
The current reduction in mortgage interest rates has allowed new home buyers to enjoy lower repayment pressure, a comparison that makes the original high-interest rate buyers feel more unfair.
The second is the psychological level. When they see new buyers buying a property at a lower interest rate, they may feel unbalanced and think that they didn't make the right choice in the first place. This psychological gap can lead to negative emotions and affect their quality of life.
Third, high-interest loans also have a profound impact on the long-term financial well-being of home buyers. Due to the higher monthly payments, buyers with high interest rates may need to experience financial stress for a longer period of time. This not only limits their spending and investment in other areas, but may also affect their retirement plans and future quality of life.
3. How should buyers with high interest rates cope with the decline in mortgage interest rates?
Faced with the current situation of mortgage interest rates falling below 4%, those who are buying a home at a high interest rate of 5.88% need not be too anxious. Instead, it is necessary to take proactive measures to reduce the pressure on the economy. The specific method can start from the following aspects:
The first is to learn more about your loan contract. Loan contracts often contain important clauses such as early repayment, interest rate adjustments, etc. By reading the contract carefully, you can clarify the specific situation of your current loan and provide a basis for subsequent decisions.
During this process, it is important to pay attention to whether the loan contract you sign is a floating interest rate or a fixed interest rate. There is a fundamental difference between the two.
Floating interest rate means that during the term of the loan, the interest rate will be adjusted accordingly according to changes in market conditions. This form of interest rate is characterized by its sensitivity to reflect the supply and demand of funds in the financial market, so that the risk of interest rate changes borne by both borrowers and borrowers is relatively small.
The floating interest rate helps financial institutions to adjust the scale of their assets and liabilities in a timely manner according to the changes in market interest rates, and also helps the central bank to understand the effect of monetary policy in a timely manner and make corresponding policy adjustments.
In practice, floating interest rates are usually calculated based on a benchmark interest rate plus a spread. The spread is determined based on the borrower's credit profile, the term of the loan, and other factors.
Variable rate loans are generally short-term loans because interest rates adjust with market changes and are not suitable for long-term fixed repayment plans.
In contrast, a fixed interest rate means that the interest percentage remains the same throughout the borrowing period for the duration of the loan. This form of interest rate is fixed and stable, and will not change due to changes in market activity.
Regardless of how market interest rates fluctuate, the repayment amount for a fixed-rate loan is always consistent. This allows borrowers to better predict and plan for future repayment plans. Fixed-rate loans are generally long-term loans for borrowers who want a stable repayment plan.
If your purchase contract says a variable interest rate. Then next year, you will automatically enjoy the mortgage interest rate below 4%.
On the other hand, if you write a fixed interest rate, then no matter how the mortgage interest rate changes. Not to mention that it has dropped below 4%, even if it drops to 0%, it has nothing to do with you. You can only continue to repay the loan at a high interest rate of 5.88%.
Second, home buyers can consider early repayment. If financial conditions allow, prepaying some or all of your loan can significantly reduce future interest expense. Then, sell the existing property and cash out to buy a new one. At this time, you can naturally enjoy the policy of lower mortgage interest rate below 4%.
Of course, when making a prepayment decision, homebuyers need to consider factors such as their own cash flow, investment opportunities, and prepayment fees that may be charged by banks.
And it's complicated to implement, and now you want to pay off your mortgage early. It's not an easy task, and it takes a long appointment to make it.
And how to quickly cash out your original property is also a big problem. You must know that the real estate is in a recession now, and the second-hand housing market is very flooded, and there are all kinds of houses.
In such a situation, it will be difficult for you to sell unless you choose to sell at a significant price reduction. If you choose to sell your original house at a reduced price for the sake of coveting that little mortgage interest rate, it is undoubtedly a thing that outweighs the loss.
If you insist on selling without a large price reduction, then the monetization cycle will become very long. Mortgage rates are likely to continue to rise, and you won't be able to gain more than you lose.
Another point to note is that unless it is those who speculate on real estate, most ordinary people do not have the ability to repay all their mortgages in advance, so this method obviously does not work.
Third, you can also take the initiative to consult banks or financial institutions to find out whether there are interest rate concessions or the possibility of switching loan products. As the market environment changes, banks may launch some preferential policies or loan products for high-interest rate home buyers. Through consultation and understanding, homebuyers may be able to find a more suitable loan option for them.
Fourth, you can pay attention to financial planning. By investing wisely and increasing their income, homebuyers can better cope with mortgage pressure. At the same time, financial planning can also help homebuyers better cope with market fluctuations and achieve financial freedom in the future.
【Conclusion】
All in all, the reason why the country chose to reduce the interest rate of the five-year LPR to more than 4% this time. Its purpose is very obvious, that is, to reduce the pressure on ordinary people to repay their mortgages. and reduce the financing cost of listed companies, so as to achieve the purpose of stimulating the economy.
But for those who originally bought a house at a higher interest rate, they inevitably have an opinion in their minds. After all, for the same house, they need to repay more mortgage interest than these later buyers.
In fact, those who bought a house at a higher interest rate can take the initiative to consult the bank that issued you a mortgage. See if there are any so-called interest rate concessions, or the possibility of switching mortgage products.
If you can, you can also consider paying off your mortgage directly. Sell the old house and buy a new property at a new interest rate.