President Pan said that existing mortgage contracts can be adjusted, and the six major banks have successively issued announcements to improve the adjustment mechanism for existing mortgage interest rates

On November 31, ICBC, ABC, BOC, CCB, Bank of Communications, and Postal Savings Bank disclosed an announcement regarding the improvement of the pricing adjustment mechanism for existing personal housing loan interest rates.

For floating rate mortgage customers whose interest rate adjustment margin deviates more than 30 basis points from the latest national average adjustment margin for newly issued housing loans, they may apply for an adjustment to the interest rate margin starting from November 1.

Additionally, no later than November 15, 2024, applications for changes in the repricing cycle will begin to be accepted. However, each mortgage can only have one opportunity to adjust the repricing cycle before the loan is settled, and multiple adjustments are not allowed. Therefore, careful consideration should be given to the adjustment.

Furthermore, starting from November 1, applications for "fixed to floating" and verification of whether the mortgage is a first home can be submitted before applying for an adjustment to the margin.

Margin Adjustment Applications Can Be Made Starting Tomorrow

According to the announcement from ABC, the applicable scope includes existing commercial personal housing loans (hereinafter referred to as "mortgages") that are priced based on the Loan Prime Rate (LPR).

When the interest rate adjustment margin for floating rate mortgage customers deviates more than 30 basis points from the latest national average adjustment margin for newly issued housing loans, they can apply to ABC for an adjustment to the interest rate margin. The newly agreed margin must not be lower than the latest national average adjustment margin for newly issued housing loans +30 basis points, and must not be lower than the current lower limit of the adjustment margin for newly issued housing loans in the city (if any). The specific margin value will be determined based on market supply and demand, customer risk premium, changes in guarantees, and other factors.

Starting from November 1, 2024, floating rate mortgage customers can submit applications for margin adjustments through mobile banking or the loan handling bank. Those who meet the conditions will be adjusted in a timely manner. To facilitate operations, it is recommended to prioritize self-service through mobile banking.

Most Do Not Need to Apply

ICBC explained that, for example, if the loan interest rate is LPR-20 basis points, and the latest national average interest rate for newly issued housing loans published by the People's Bank on October 31 is 3.33%, considering that the arithmetic average of the LPR for more than 5 years published last quarter (i.e., July to September) is 3.85%, the national average interest rate for newly issued housing loans (3.33%) corresponds to an adjustment margin of -52 basis points. The adjustment margin (-20 basis points) is 32 basis points higher than the national average adjustment margin for newly issued housing loans (-52 basis points), meeting the adjustment conditions. If the current area has not set a lower limit for mortgage interest rates, you can apply to adjust it to -22 basis points (=-52 basis points +30 basis points), resulting in a new loan interest rate of LPR-22 basis points.

At the same time, ICBC has already made a batch adjustment to the interest rates of existing mortgages on October 25, with most mortgage interest rates adjusted to LPR-30 basis points. The adjustment margin (-30 basis points) is 22 basis points higher than the national average adjustment margin for newly issued housing loans (-52 basis points), and does not currently meet the adjustment conditions, so there is no need to submit an application at this time.

How to Calculate the Average Value of LPR for More than 5 Years

ICBC explained in the Q&A that one can log onto the People's Bank of China official website to check the monthly 5-year LPR and take the arithmetic average of the 5-year LPR published over the three months within that quarter (rounded to two decimal places).

For example, if the 5-year LPR for three months in a quarter is 3.8%, 3.8%, and 3.7%, then the average 5-year LPR published for that quarter would be 3.77% (= (3.8% + 3.8% + 3.7%) / 3).

The People's Bank of China will publish the average interest rate for newly issued housing loans nationwide at the end of January, April, July, and October for the previous quarter, which can be checked on the People's Bank of China official website. The loan can then be assessed according to the rules for Q1 and Q2 to determine if it meets the adjustment conditions and the adjusted interest rate value.

Fixed to Floating Rate Adjustment with Added Points

For existing fixed-rate and benchmark-rate housing loans, one can first apply to convert to a floating rate and then apply for an adjustment of the added points.

Taking ICBC as an example, customers must first apply to ICBC to convert to a floating rate, using the most recent month's LPR converted to an added points format. The added points value equals the difference between the original contract interest rate level and the corresponding term LPR for the most recent month, and then apply for interest rate pricing adjustments according to the above rules.

After the conversion of the interest rate pricing method, the repricing date will be the date of the pricing conversion application, and customers cannot apply to revert to a fixed rate or benchmark rate pricing.

This service will also be available online starting from November 1, 2024 (inclusive) through the mobile banking "Loan - Housing Loan Interest Rate Adjustment" section or offline by applying to the loan service bank. After approval, if it meets the interest rate added points adjustment rules, one can continue to apply for the adjustment of the interest rate added points.

Second Home First Apply to Convert to First Home

Additionally, taking ICBC as an example, for second home loans in regions such as Beijing, Shanghai, and Shenzhen, if they meet the "Second Home to First Home" loan conditions, customers can apply to ICBC for "Second Home to First Home." After review and confirmation of eligibility, it can be converted to a first home loan, and then the interest rate can be adjusted according to the above adjustment rules. The "Second Home to First Home" requirements are subject to local policies.

This service will also be available online starting from November 1, 2024 (inclusive) through the mobile banking "Loan - Housing Loan Interest Rate Adjustment" section or offline by applying to the loan service bank. After approval, if it meets the interest rate added points adjustment rules, one can continue to apply for the adjustment of the interest rate added points.

Repricing Applications Must Start by November 15

CCB's announcement also indicated that it will start accepting repricing cycle change applications no later than November 15, 2024. Customers with floating rate loans can log onto CCB's mobile banking, CCB's smart personal loan WeChat mini-program, and other online channels, use the "Existing Housing Loan Interest Rate Adjustment" function, click "Repricing Cycle Change," and follow the system prompts for self-service processing. The newly agreed repricing cycle will take effect on the day of successful processing.

If needed, borrowers can also contact the loan processing institution to apply for the above services according to the aforementioned schedule

There is only one opportunity to adjust the repricing period

According to ICBC, you can choose one of three methods for repricing: every 3 months, every 6 months, or every 12 months.

If the repricing date is the loan issuance date, the adjusted repricing date will be the corresponding date after adding the repricing period to the loan issuance date.

For example, if the repricing date is March 15 and the repricing period is adjusted to 3 months, the repricing dates will be adjusted to March 15, June 15, September 15, and December 15.

If the repricing date is January 1 each year, and the repricing period is adjusted to 6 months, the repricing dates will be January 1 and July 1 each year; if the repricing period is adjusted to 3 months, the repricing dates will be January 1, April 1, July 1, and October 1 each year.

However, ICBC also specifically reminds that each mortgage loan has only one opportunity to adjust the repricing period before the loan is settled, and multiple adjustments are not allowed.

A shorter repricing period is not necessarily more suitable

Furthermore, ICBC explains that a shorter repricing period is not always more suitable. During a declining loan interest rate cycle, a shorter repricing period allows you to implement the newly lowered LPR more quickly; conversely, during a rising loan interest rate cycle, a shorter repricing period means you will implement the newly raised LPR more quickly. Since there is only one opportunity to adjust the repricing period before the loan is settled, and the adjustment cannot be revoked after it is made, it is recommended that you carefully consider various factors before making a decision