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The interest rates of existing mortgage loans fell again. On July 22, the 1-year loan market benchmark rate (LPR) fell by 10 basis points to 3.35%, and the LPR for more than 5 years fell by 10 basis points to 3.85%. Since 99% of mortgage rates are currently linked to the LPR for more than 5 years, this means that the interest rates of borrowers' existing mortgage loans will also fall by 10 basis points.

The downward trend in the interest rates on existing mortgages has two meanings. The first meaning is that since the interest rates on existing mortgages are linked to the LPR for more than 5 years, when the latter falls, the former also falls accordingly. Compared with the adjustment of the interest rate on the first set of houses, this adjustment involves more groups and a wider coverage, covering not only newly issued loans, existing loans, but also first set of houses and second set of houses. The downward trend in the interest rates on existing mortgages will help further reduce the financial burden of home buyers and better meet reasonable housing purchase needs. According to market institutions, if the total amount of the mortgage is 1 million yuan, the term is 30 years, and the repayment is in equal installments of principal and interest, the interest expenditure can be saved by about 57 yuan per month, and the total interest savings will exceed 20,000 yuan.

The second meaning is the reduction of the interest rate of existing mortgage loans. Simply put, the mortgage interest rate when the borrower bought the house was high, and the interest rate of the newly issued mortgage is low now. Can the interest rate of the mortgage loan that has been issued be reduced, or even reduced to the interest rate level of the newly issued mortgage loan? In this regard, there is a high voice in the market and controversy. It is not difficult to clarify the logic and find that it is not concerned with the decline of LPR for more than 5 years, but the change of "plus or minus basis points" of the loan interest rate. For example, if a borrower's mortgage was issued in 2020, the national first-home mortgage interest rate policy floor was 5-year LPR at that time, and the first-home mortgage interest rate policy floor in the borrower's city was "5-year LPR + 55 basis points". Subsequently, the national first-home mortgage interest rate policy floor was lowered and cancelled in May 2024, and the first-home mortgage interest rate in the borrower's city has also been reduced to "5-year LPR - 45 basis points". At this time, can the borrower request that his mortgage interest rate be reduced from "5-year LPR + 55 basis points" to "5-year LPR - 45 basis points".

There are two common views on the reduction of existing mortgage interest rates. One view is that reducing the interest rate of existing mortgages to the level of newly issued mortgage interest rates is equivalent to consumers purchasing goods and then discovering that the price of the goods has dropped, and asking for a refund of the price difference, which is not entirely reasonable. Another view is that reducing the interest rate of existing mortgages can help borrowers save interest expenses, narrow the interest rate spread between existing and new mortgages, ease the phenomenon of early loan repayment, and reduce illegal loan transfers. It is conducive to restoring and expanding consumption, and helps prevent credit risks and illegal and irregular risks.

The controversy over the reduction in interest rates on existing mortgage loans lies in the "basis", that is, why and how much to reduce. In August 2023, the financial management department issued the "Notice on Matters Concerning Reducing the Interest Rates of Existing First Home Loans", and the reduction in interest rates on existing mortgage loans was officially launched in September of that year. However, it should be noted that the financial management department has drawn a line-the adjusted interest rate cannot be lower than the lower limit of the first home loan interest rate policy in the city where the original loan was issued. This approach not only follows the principle of taking measures based on the city, but also takes into account the time factor, which clarifies the ideas and provides a basis for the reduction of interest rates on existing mortgage loans.

Regardless of the meaning, various discussions on the downward trend of existing mortgage interest rates reflect a series of needs of borrowers - reducing financial costs, stabilizing home purchase expectations, and increasing consumption willingness. In this regard, all parties in the market should view it rationally and make prudent assessments. It is imperative that borrowers figure out their mortgage reset date. The downward trend in existing mortgage interest rates caused by the downward trend of LPR is not achieved overnight, and borrowers have to wait until the mortgage reset date to enjoy the discount. The mortgage reset date is mainly divided into two categories: January 1 of each year is used as the reset date, and the date of issuance of the first loan is used as the reset date. For example, the first loan issuance date of a borrower is August 22. If the "floating interest rate" method is selected, the mortgage interest rate will be repriced on August 22 of each year according to policy changes. Next, borrowers can reasonably plan the rhythm of capital receipts and expenditures based on their mortgage reset date and the latest LPR trend to further stabilize expectations. (Source: Economic Daily Author: Guo Ziyuan)