In early 2020, a black swan named "New Coronavirus" emerged, catching people around the world off guard. The global economy and housing market have received a great impact, and many people's loan repayment plans for the next two or three years, even five or ten years have been completely disrupted.
Let’s talk about Canada. In the past two or three years, the economy and employment have been growing steadily, and the central bank’s interest rates have been rising regularly. During this period, those who borrow or renew their loans will choose a fixed interest rate. After all, the central bank was convinced that 1.75% was not enough, and it was normal to increase the benchmark interest rate to 3%!
Now the epidemic and oil prices are hit hard, the central bank's benchmark interest rate has been falling again and again, and now it is only 0.75%. Some experts predict that it may drop again, and even usher in the "0 interest rate era".
When raising interest rates, friends who quickly signed for three to five years of fixed interest rates were crying in the toilet... Many people said: Can you give me a chance to go back on my word? Convert fixed interest rates to floating?
As for friends who are now floating interest rates, they are actually thinking: I heard that banks will raise interest rates after the epidemic. Should we pay back the loan in advance while the interest rate is low? Or quickly convert to a fixed interest rate?
Recently, a friend encountered this problem on a local Chinese forum: Ask for help, you have a deposit of 280,000 yuan and a mortgage of 250,000 yuan. How should you operate during the epidemic?
The original post is as follows:
"I bought a new apartment at the end of last year and had a loan of 25W. The 3-year fixed interest rate was 2.99. At the beginning of this year, I sold my old apartment and got 28W. Now the 3-year fixed interest rate of the same bank is 2.39.
I talked to the bank loan staff: This is the situation.
1. If I want to repay the loan in advance, in addition to repaying the 25W principal, I also have to pay an additional $2500 interest as a fine. After that, I will have more than 20,000 cash left on my hand.
2. If I keep the interest rate unchanged and continue to repay the loan, the total interest in three years will be 2.1W. In this way, I currently have 28W of cash on hand, but after three years, the principal + interest will be almost 27.8W.
3. If I terminate the current contract with the bank and re-sign the 3-year contract with a new interest rate of 2.39, then I will have to pay a fine of 2,500, and the total interest paid in three years is 1.7W. According to his calculations, I saved about $1,900 inside and outside. Then I can still hold more cash on hand.
(He said that his situation is similar to mine, he chose 3, and he has paid the fine RENEW contract)
The current economic situation is not good, my company We have been asked to temporarily close our business and wait for work, and we are likely to not renew the contract afterwards. In the case of
, do you think I should choose which one is more suitable? "Looking at
, compared with Plan 2, which does nothing, the advantage of Plan 1 is to save worry and never pay interest again, but there is not much cash left on hand; although Plan 3 has saved $1,900 in three years compared to Plan 2, which is not much, it is because it has a flexibly controlled cash flow.
So netizens started to discuss:
"Everyone says that cash is king at this time...interest rates will drop, so don't worry about paying it back first?"
"If it were me I choose 3. "
" If it were me, I might consider taking out half or paying the mortgage in advance more than half of the existing funds. I don't know if the bank can allow it. Then change a new interest rate, but the interest rate may still be lowered. Leave the remaining cash for life and emergency response if there is no income. When the epidemic improves, pay attention to the investment market. If work recovers and there is income, I will use the remaining funds to make some funds."
"There is not much difference. I'll give you an extreme suggestion. I will mortgage the house directly and add cash. I will invest in US stocks, Apple, Facebook. When the epidemic is over, the stock market will either lose the bottom, or your next post is what luxury house is better to buy in Wenxi."
"Simple, the loan is currently being paid, and the money is invested in a small apartment for rent."
"I chose 4, and I took advantage of the market crash to invest 280,000 yuan. After the rebound, I sold it to repay the loan and fine and left a lot of cash in my hand. "
Everyone has different investment styles, the current loan interest rates are also different, and the cash situation at hand is also different, so whether to repay the loan in advance, or whether to convert to floating in fixed cannot be generalized, it needs to be carefully calculated. But the basic calculation method can still be shared with everyone.
first talks about early repayment of loans. This mainly needs to be considered for floating interest rates, because the fine for early repayment of loans for fixed interest rates is not affected by the central bank's interest rate cut.
If it is a floating interest rate mortgage loan, the calculation method of early repayment of is relatively simple, which is equivalent to the amount of interest of three months. For example, there is a 500,000 loan with a floating interest rate of 2.95%, and the fine is (500,000×2.95%)/12×3=$3687.5. Of course, the bank will also add accrued in the end. Interest, Discharge Fee, etc., the final amount will be slightly higher.
So if you have cash on hand, you have to repay the loan in advance sooner or later. Of course, you have to choose when the interest rate is low.
When repaying a fixed interest rate mortgage loan in advance, the fine agreement is usually: take one of the more amount of the following two: 3 months' interest, or the interest rate difference (interest-rate) differential, IRD).
3-month interest algorithm is the same as before. But the interest rate difference is more complicated.
Suppose there is a mortgage loan with a fixed interest rate of 2.69% for a 5-year contract period. If you want to repay the loan in advance after 3 years, assuming that the loan balance is 300,000 at this time, the 5-year interest rate is still 2.69%, and the 2-year interest rate is 2.39%.
Look at the interest rate difference (IRD) again. If there is no listed interest rate (Posted Rate) The calculation is quite simple: compare your contract interest rate with the current interest rate closest to your remaining contract period. Because your contract period has 2 years left, use a 2-year fixed interest rate of 2.39%, with a difference of 0.3%. (2.69%-2.39%)×$300000×(24/12)=$1800.
However, all major banks use the listed interest rate (Posted) rate) is discounted as the contract interest rate, and the listing rate is calculated using the listing interest rate. Therefore, the above situation will become that your 5-year loan listing rate is 4.74%, the contract interest rate after the discount is 2.69%, and the discount is 2.05%. The 2-year listing rate is 2.94%, and the discount is 2.39%. Other conditions remain unchanged.
interest rate difference is 4.74%-2.94%=1.8%. Therefore, IRD=(4.74%-2.94%)×$300000×(24/12)=$10800.
So if you want to repay the loan in advance, you need to carefully calculate and plan.
Finally, transfer to loan . If it is floating transfer to fixed, then it is absolutely so Easy, whether you want to lock now or wait for a lower interest rate, it is OK; but fixed to floating involves the issue of using the interest rate difference to calculate the fine. Whether it is cost-effective, you must take your situation and calculate it before you know it.
