The deadline for LPR conversion is approaching, and the bank sent a text message: If you didn’t say not to do it, then you can do it all.

At the end of 2019, the People's Bank of China issued an announcement stating that starting from March 1, 2020, financial institutions should negotiate with existing floating rate loan customers on the pricing basis conversion terms. In principle, it should start in August 2020. Completed before the 31st. At that time, the relevant person in charge of the People's Bank of China explained that existing floating-rate loans were still priced based on the loan benchmark interest rate, which could not reflect changes in market interest rates in a timely manner and was not conducive to protecting the rights and interests of both borrowers and lenders.

The "China Monetary Policy Implementation Report (Second Quarter of 2020)" released by the People's Bank of China not long ago disclosed that as of the end of June, the progress of conversion of existing loan pricing benchmarks had reached 55%. Among them, the conversion progress of existing corporate loans is 76%.

At the same time, some local banks are currently undergoing a transformation "sprint". According to media reports, the Hubei Provincial Associated Press also held a "supervision meeting on the conversion of pricing benchmarks for existing floating-rate loans" and requested to ensure that the LPR interest rate conversion task target is completed in advance before August 20.

How to convert existing personal housing loan pricing benchmarks? Is LPR conversion cost-effective?

Let’s take an example to illustrate: the actual execution interest rate of a commercial personal housing loan in March 2020 was 5.6%, and the remaining term was 25 years.

If the lender chooses to convert to a fixed interest rate, the interest rate terms of the loan contract will be changed to a fixed interest rate of 5.6% and will be implemented until the loan is settled;

If the lender chooses to convert to LPR is the floating interest rate as the pricing benchmark, then: (1) the actual execution interest rate of the loan until December 2020 remains unchanged at 5.6%; (2) the point difference is the current actual execution interest rate and the one released on December 20, 2019 The difference between the LPR (4.8%) of more than 5 years, that is, 80 basis points (5.6%-4.8%=0.8%), and this spread will remain unchanged in the future; (3) If the lender and the lender determine re-pricing during conversion The cycle is still 1 year, and the repricing date is January 1 of each year. From January to December 2021, the actual execution interest rate of this loan is adjusted to the LPR over 5 years announced on December 20, 2020 + 0.8%. The same applies every year thereafter.

Starting from August 20, 2019, at 9:30 on the 20th of each month (postponed if it is a holiday), the People's Bank of China authorizes the National Interbank Funding Center to announce the LPR for that month. On July 20 this year, the loan market quoted interest rate (LPR) was 3.85% for one-year term and 4.65% for five-year term and above. The new 1-year LPR and the 5-year and above LPR are still "standing in place" and have not been adjusted for 3 consecutive months.

Xu Xiaole, chief market analyst at Shell Research Institute, believes that the economic recovery in the first half of the year exceeded expectations, which shows that the response measures taken after the epidemic have achieved initial results. At the same time, due to financial easing, the prices of assets such as land and housing prices in core cities have increased. Therefore, recent monetary policy has maintained a certain degree of restraint and loan interest rates have remained flat, in line with the principle of timeliness and moderation.

Although mortgage interest rates have not been lowered recently, overall there is a certain degree of interest rate reduction. Since the introduction of the LPR mechanism, the LPR interest rate over 5 years has dropped by 20 basis points cumulatively, from 4.85% to 4.65%. Taking a first home loan of 1 million yuan for 30 years as an example, the monthly mortgage repayment can be reduced by more than 120 yuan. . "Whether to convert or not is still based on personal judgment of future interest rate trends." Yan Yuejin, research director of the E-House Research Institute Think Tank Center, said that if you believe that the LPR interest rate is likely to decrease in the future, you can choose to convert.

Source Beijing Daily Client | Reporter Cao Zheng

Editor: Cao Zheng

Process Editor Wu Yue