Home » Do the advantages of repaying the mortgage in advance outweigh the disadvantages? Under what circumstances is it more cost-effective to repay the mortgage in advance? – Minnan Net

Do the advantages of repaying the mortgage in advance outweigh the disadvantages? Under what circumstances is it more cost-effective to repay the mortgage in advance? – Minnan Net

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At the end of the year and the beginning of the year, many individual housing loan borrowers accelerated their early repayment of loans, setting off a wave of early repayment boom. There are many reasons for this. Commercial banks, borrowers and relevant departments should treat it rationally and take reasonable measures to alleviate it, so as to further stabilize residents’ confidence and expectations.

In bank credit, early repayment is a relatively common behavior. Borrowers consider early repayment due to their own financial arrangements, which can reduce interest expenses; for risk management needs, banks may also require borrowers to repay early if they comply with the contract. However, the recent “early repayment craze” is mainly driven by borrowers. In recent years, due to multiple shocks such as the economic downturn and repeated epidemics, some residents’ income has become more unstable, and their expectations for the future are uncertain. Some borrowers try to reduce the pressure on loan repayment and reduce the burden of housing consumption by repaying all or part of their loans in advance.

At the same time, since 2022, the volatility of my country’s financial market has intensified, the prices of stocks, funds, etc. have declined, and the bank’s wealth management products, which have always been stable, have “broken net”. Under such circumstances, ordinary residents tend to be conservative in investment risk preference, and use part of the funds originally used for investment for early repayment. According to the results of the central bank’s survey of urban depositors in the fourth quarter of 2022, 61.8% of residents tend to “save more”, an increase of 3.7 percentage points from the previous quarter; residents who tend to “invest more” decreased from the previous quarter. In addition, the high interest rate of some existing housing loans is also one of the reasons why borrowers repay early. The interest rate of some housing loans issued since 2020 is above 6%. Although the LPR (quoted loan market interest rate) will drop three times in 2022, the interest rate of some existing housing loans is still higher than the current average mortgage interest rate of about 4.3%.

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Due to the significant decline in the number of new housing loan applications and the increase in borrowers’ early repayment of housing loans, a small number of banks have increased the cost of early repayment by collecting liquidated damages and compensation; most banks have made appointments in advance and waited for a long time. Try to reduce or delay prepayment pressure.

Legally speaking, early repayment is a change to the loan term or amount agreed in the original loan contract, and it does require the borrower and the bank to negotiate and agree. However, in recent years, the state and financial management departments have repeatedly required banks to increase support and services for the real economy, effectively solve difficulties for enterprises and individuals, and reduce the comprehensive financing costs of the real economy and the burden of personal consumption credit. Commercial banks should be based on the long-term, improve services, and provide convenience for customers to repay loans in advance through online and offline integration. Some banks that charge “compensation” and “liquidated damages” for early repayment of loans can further change their concepts, demonstrate the due actions and responsibilities of commercial banks, and better serve the society.

For individuals, the most direct way to judge whether they need to repay personal loans in advance is to see whether the investment income can cover the loan interest. If the return on investment is higher than the loan interest rate, consider using more funds for investment; otherwise, consider repaying the loan in part or in full. Of course, it is also necessary to reserve sufficient funds for daily living expenses, future pensions, medical care, etc. It is not advisable to get together to repay the loan in advance.

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From the perspective of repayment methods, generally speaking, the repayment method of equal principal repays more principal and less interest in the early stage, and it is more cost-effective to repay early. At least, if the repayment has exceeded half, in fact, early repayment may not be considered. In addition, if it is a provident fund loan, since the interest rate is significantly lower than that of general loans in the market, there is no need to consider early repayment. In 2023, with the recovery of my country’s macro economy, the capital market is more likely to rise, and the loan interest rate may still decline. Subsequent early repayment of loans needs to be carefully considered.

At present, the problem of excessive interest rate gap between some stock mortgages and new mortgages needs to be paid attention to. It is recommended that relevant departments speed up the introduction of relevant measures to guide banks to moderately reduce the interest rate of existing mortgages, gradually narrow the interest rate gap between existing mortgages and new mortgages, further reduce the burden on housing consumers, and effectively solve the problem of residents getting together to repay early and illegal “transfers”. loan” and other issues. It can accelerate the decline of LPR with a period of more than 5 years, continue to reduce the interest rates of new and existing housing loans, and reduce the burden of housing consumption on residents.

Taking into account the stabilization and recovery of the macro economy and the recovery of the real estate market in 2023, the boom in prepayment in the next stage may be flattened. Of course, stabilizing residents’ confidence and expectations and slowing down loan repayments have more important and far-reaching significance. In December 2022, the Central Economic Work Conference emphasized that “the recovery and expansion of consumption must be given priority.” How to take effective measures to reduce the prepayment of housing loans and guide residents to convert savings into consumption and investment will provide strong support for the recovery and expansion of consumption and the acceleration of economic and social recovery. (Author: Dong Ximiao)

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Original title: Do the advantages of paying off the mortgage in advance outweigh the disadvantages?

Editor in charge: Zeng Shaolin

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