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"i paid off more than 500,000 yuan of mortgage in one year, saving about 4.5% of interest cost (on this part of the principal). isn't it better than financial management?" yuan li (pseudonym), a home buyer in shenzhen, posted his loan repayment record on a social platform.

there are many homebuyers like yuanli. recently, with the large difference in interest rates between existing and new mortgages and the continued asset shortage, the phenomenon of early loan repayment has continued to gain momentum.。recent statistics from cicc show that the current early repayment rate of bank mortgages is around 14%.

rumors that existing mortgage rates will be reduced are also spreading in the market. some industry insiders believe that, combined with the latest mortgage policies and interest rate changes this year, there is a possibility of further reductions in existing mortgage rates. if the existing mortgage rate is adjusted, it may have an impact on the bank's interest margin, but assuming that the liability cost is adjusted at the same time, it is expected that the overall impact on the interest margin will be neutral.

some high-priced homebuyers prepay their loans several times a year

after the "may 17 new policy" in the real estate market,the interest rate gap between existing mortgage loans and newly issued mortgage loans has returned to a high level.

lin yingqi, a banking analyst at cicc, said that according to the central bank data, the interest rate for newly issued mortgages was 3.45% as of june. if the lpr cut in july is taken into account, the newly issued interest rate is estimated to be around 3.35%, which is 62 basis points lower than 3.97% in december 2023, while the existing mortgage rate has only been reduced by 35 basis points. based on this calculation, the interest rate spread between the existing mortgage rate and the new mortgage rate has returned to a high level of about 60-70 basis points.

the interest rate spread in some cities may be even larger. according to statistics from li yujia, chief researcher of the housing policy research center of the guangdong provincial urban planning institute, from october 2019 to may 2022, the interest rates for first-home mortgages in several key cities including beijing, shanghai, shenzhen and xiamen were generally between 4.8% and 5.2%, which is about 150bp higher than the current incremental first-home mortgage rate.

"before the policy of lowering the interest rates of existing mortgage loans was implemented, the decline in the interest rates of new personal housing loans prompted residents to replace their loans, resulting in an increase in the early repayment rate," guotai junan pointed out in a recent research report.

at the same time, from october last year to date, events such as deposit rate cuts, long-term government bond guidance, suspension of sales of large-denomination certificates of deposit, and manual interest payment management have exacerbated residents' "high-yield asset shortage."

the widening interest rate gap and the intensification of the "asset shortage" have contributed to the continued phenomenon of early loan repayment.

some homebuyers whose existing mortgage loans are still high have repaid their loans early several times this year. yuanli calls early loan repayment "self-help". he calculated for the reporter that he bought a house at a high price in 2020, and the current mortgage interest rate is lpr+30bp (4.5%, lpr was 4.2% at the beginning of the year, and it has not reached the repricing cycle). the combined rate of return of his wealth management and funds in the past year is 3%. the interest rate spread is large, and early loan repayment has basically become an inevitable choice.

"the current interest rate for new mortgage loans is 3.5%, while ours is 4.5%. the gap in my heart is really too big." yuan li mentioned that he has applied for early loan repayment twice this year for a total of more than 500,000 yuan, and he will strive to repay hundreds of thousands of yuan more next year based on the pace of salary payments to reduce the interest cost.

some buyers are more adventurous and use business loan refinancing to repay their loans in advance. a shenzhen buyer who wishes to remain anonymous said that he applied for a consumer loan of 100,000 yuan and a mortgage business loan of 400,000 yuan, and repaid the mortgage with an interest rate of 4.2%.

"applying for business loans and consumer loans is stressful in the early stages, but the actual interest is reduced, and i want to say goodbye to the life of a 'house slave' before i turn 40. many of my friends who are financially capable now are planning the same thing," he said. however, according to the reporter's understanding, currently using consumer loans and business loans to replace mortgages may involve violations, and there are multiple risks behind it.

recent statistics from cicc show that the current early repayment rate of bank mortgages is still at a high level of around 14%, and there may be room for using consumer loans and business loans to replace mortgages.

(image source: cicc research report)

the clues can also be seen from the semi-annual reports of a-share listed companies. the financial reports show that as of the end of the second quarter, the total balance of personal housing loans of the six major state-owned banks was 25.49 trillion yuan, a decrease of 325.471 billion yuan from the beginning of the year.

data recently released by the people's bank of china further confirmed this trend. at the end of the second quarter of this year, the balance of personal housing loans was 37.79 trillion yuan, a year-on-year decrease of 2.1%.

can the interest rates on existing mortgage loans be lowered further?

against the backdrop of rising prepayment of loans, rumors have been swirling recently about a reduction in existing mortgage loans.

however, the first financial reporter confirmed with several bank insiders, and they all said they were not aware of it.

behind the rumors, is there a possibility that the interest rates on existing mortgage loans will be lowered again?

"combining this year's latest mortgage policy and interest rate changes, there is indeed a possibility of further reducing the interest rates of existing mortgages." sun binbin, chief fixed income analyst at tianfeng securities, believes that the breadth and magnitude of the reduction in the interest rates of existing mortgages in august 2023 are not small, but there is still room for further reduction. on the one hand, last year's policy only involved first-home mortgages, not second-home mortgages; on the other hand, the previous adjustment only required that the reduction should not be lower than the lowest interest rate floor in various places when the original loan was issued.

from a policy perspective, the politburo meeting in april this year made it clear that, in light of new changes in the supply and demand relationship in the real estate market and the people’s new expectations for quality housing, we should coordinate research on policy measures to digest existing housing and optimize incremental housing.

regarding the method of interest rate reduction, some institutional personnel believe that it is unlikely to open up mortgage transfers, and the existing mortgage surcharges may be directly reduced, and the overall interest rate reduction may be 55bp or 80bp.

"it is possible to lower the interest rate on existing mortgages, but mortgage transfers may not be allowed. it is more likely that the interest rate on existing mortgages will be reduced." liang fengjie, chief analyst of the banking industry at zheshang securities, believes that mortgage transfer is equivalent to residents who originally borrowed from bank a being able to replace their original loans with loans from bank b at the latest interest rate. this involves inter-bank cooperation, etc., and the process is complicated. moreover, in the current context of weak mortgage demand, it may cause vicious competition among banks if it is liberalized.

lin yingqi holds a similar view. he believes that there are still uncertainties as to whether mortgage transfer will be liberalized again, the scope of mortgage transfer (whether it includes second homes), and whether banks will lower mortgage interest rates on their own in an environment of peer competition.

assuming that the interest rate of existing mortgage loans is lowered again, how much will it drop? sun binbin believes that there are two calculation logics. first, according to the previous existing mortgage interest rate of 4.27% announced by the central bank, it can be compressed to the weighted average interest rate of new housing loans in the second quarter of this year of 3.45%, which can be compressed by 82bp, corresponding to a reduction of about 310 billion yuan in interest expenses for borrowers each year.

another method of calculation is to take the bank of communications as an example, which disclosed the annualized average yield of its existing medium- and long-term personal loans in the first half of this year. the interest rate was about 4.0%, which dropped to the weighted average interest rate of new mortgage loans at 3.45%, a compression of about 55bp, corresponding to a reduction of about 210 billion yuan in interest expenses for borrowers each year.

it is worth noting that institutions generally believe that adjustments to existing mortgage rates will have an impact on bank interest spreads, and there is a high probability that supporting policies will be introduced to further reduce deposit costs.

lin yingqi believes that although the possible adjustment of the existing mortgage interest rate will affect the bank's interest margin, the proportion of mortgages of large state-owned banks is higher than that of small and medium-sized banks, and they are more affected by the adjustment of the existing mortgage interest rate. however, assuming that the liability cost is adjusted synchronously, the overall impact on the interest margin is expected to be neutral.

he further added that in fact, even if the existing mortgage interest rates are not adjusted, residents may still put pressure on banks' interest spreads through methods such as early loan repayments and business consumer loan replacements.

liang fengjie believes that considering the high pressure on commercial banks' interest margins, regulators have indicated that they need to maintain reasonable profits and net interest margins for commercial banks. if the interest rate on existing mortgage loans is reduced, it is expected that there will be a high probability that deposit costs will be reduced to offset the pressure on bank interest margins.

"lowering the interest rates on existing mortgage loans may not be able to completely alleviate the pressure of 'early loan repayment' because the latter is rooted in the lower return on social investment." sun binbin believes that from the perspective of institutional behavior, lowering the interest rates on existing mortgage loans will to a certain extent affect the bank's existing business and may further increase the shortage of assets and profits.