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today, the people's bank of china issued an announcement to improve the interest rate pricing mechanism for commercial personal housing loans. on the same day, the people's bank of china guided the market interest rate pricing self-regulatory mechanism to issue the "initiative on batch adjustments to existing mortgage interest rates."

according to comprehensive announcements and initiative information, before october 31, 2024, commercial banks will carry out another batch adjustment of eligible existing mortgage loans, reducing the interest rates of existing mortgage loans with higher interest rates to around the national new mortgage interest rates. after the batch adjustment, starting from november 1, 2024, both parties of commercial personal housing loans that meet certain conditions can negotiate to adjust the point increase range and repricing cycle.

a reporter from the associated press calculated that taking an existing mortgage with a term of 1 million yuan, 25 years, and equal principal and interest repayments as an example, assuming that the mortgage interest rate is reduced from 4.4% to 3.55%, the borrower's interest expenses can be saved by about 5,600 yuan per year. the reduction in existing mortgage interest rates will help borrowers further reduce mortgage interest payments and increase residents' willingness to consume. it will also help stabilize home buyers' expectations and boost confidence.

when to adjust? how to make batch adjustments?

according to the "initiative", in the batch adjustment stage, existing mortgage loans for first, second and above homes can be adjusted. existing mortgage loans that have had their point markup adjusted last year are also included.

in terms of reduction, for existing mortgage loans with a point increase above -30 bp on the basis of lpr, the point increase will be adjusted to no less than -30 bp, and not lower than the lower limit for new commercial individual housing interest rates currently implemented in the city where they are located (such as beijing, shanghai, shenzhen).

the "initiative" emphasizes that in principle, all commercial banks should uniformly implement batch adjustments to the interest rates of existing mortgage loans (including first homes, second homes and above) before october 31, 2024. a number of banks also told reporters from the financial associated press that they will issue operational details before october 12 and implement unified batch adjustments before october 31.

to what level will the existing mortgage interest rates drop due to batch adjustments?

according to central bank data, as of the end of july, the weighted average interest rate of all existing mortgage loans was approximately 4.06%. in the first eight months of 2024, the national average interest rate for new mortgage loans was 3.61%. the above-mentioned "initiative" clarifies that before october 31, the point increase rate for existing mortgage loans with an lpr increase rate higher than -30 bp will be adjusted in batches to no less than -30 bp. after the adjustment, the existing mortgage interest rate will drop to approximately lpr (3.85%)-30bp=3.55%, which is slightly lower than the national average interest rate for new mortgage loans in the first eight months of 2024 (3.61%).

previously, pan gongsheng, governor of the people's bank of china, made it clear at a press conference of the state council information office that the people's bank of china plans to guide banks to make batch adjustments to existing mortgage interest rates and lower existing mortgage interest rates to near the new mortgage interest rates, with an expected average decrease of about 0.5 percentage points. "the existing mortgage interest rates issued by different banks and in different periods, in different regions, are at different levels, and the above-mentioned downward fluctuation is the expected average."

it can be seen that according to the above case, after the adjustment, the interest rate will drop by about 0.5 percentage points from the 4.06% before the adjustment. the drop is expected to be an average, and the specifics will be different for each contract. if we take into account the central bank's policy interest rate cut of 0.2 percentage points, the lpr may follow suit on october 21. after loan repricing, the adjusted existing mortgage interest rate will be significantly lower than 3.55%, significantly saving mortgage borrowers' interest expenses.

however, it is worth noting that since borrowers have different repricing dates, the interest rates of different borrowers will differ after batch adjustments. the decrease in the interest rate after batch adjustment is mainly caused by the drop in point addition range to -30bp. after repricing, the decrease in lpr in the latest pricing cycle will also be reflected, and the interest rates of borrowers participating in this batch adjustment will be adjusted to the same level.

take the following table as an example. assume that batch adjustment will be carried out on october 31, 2024. since the lpr of more than 5 years in february and july 2024 also dropped by 0.25 percentage points and 0.1 percentage points respectively, the repricing date is 1 year each year. on october 1st, the adjusted interest rate on october 31st was 3.9% (the lpr at that time was 4.2%-0.3%). if the lpr remains unchanged at 3.85%, the interest rate after the lpr repricing on january 1st next year will be 3.55 % (lpr at the time was 3.85%-0.3%).

if it is assumed that the lpr of more than 5 years reported on october 21, 2024 follows the central bank's policy interest rate by 0.2 percentage points, then the latest lpr will drop from the current 3.85% to 3.65%, and will remain unchanged thereafter. after the lpr repricing on january 1 next year, the interest rate will be 3.35% (the lpr at that time was 3.65%-0.3%).

how to adjust the lower limit of interest rate policy in cities? how to adjust the fixed interest rate existing mortgage loan?

for some cities that still set a lower limit for new housing loan interest rate policies, the adjusted point increase rate must not be lower than the lower limit.

for example, the lower limit of the interest rate policy for second-home loans in beijing is -5bp for second-home loans within the fifth ring road, and -25bp for second-home loans outside the fifth ring road. when the corresponding second home loans are adjusted in batches, the bonus points are adjusted to -5bp and -25bp respectively. for example, if a borrower purchases a second home outside the fifth ring road in beijing in 2022, the mortgage interest rate will be "lpr+105bp". this batch reduction will be adjusted to "lpr-25bp", which will reduce the total by 130bp.

for existing fixed-rate mortgages, convert the latest lpr into points, and then adjust the point margin to -30bp. for example, for an existing fixed-rate mortgage with an interest rate of 4%, the latest lpr of more than 5 years is 3.85%. first, convert the fixed interest rate to 4% = lpr + 15 bp, and then adjust 15 bp to -30 bp, which means a total reduction of 45 bp.