As Hangzhou's mortgage interest rate fell to a record low, many mortgage lenders began to struggle: should they repay their loans early? Today, we're going to talk about this topic and help you make the smartest choice!
1. Why are mortgage borrowers considering prepayment?
Recently, Hangzhou's mortgage interest rate has dropped to a staggering 3% like a roller coaster! As a result, many people's deposits and wealth management products cannot cover the mortgage interest. As a result, prepayment of loans has become a favorite of many people. Before and after the Spring Festival, everyone has a lot of spare money in their hands, and the popularity of early loan repayment has skyrocketed.
2. Is prepayment really cost-effective?
The question of whether prepayment is cost-effective varies from person to person. First of all, you have to look at which is higher, your investment income or your mortgage interest rate. If the investment income is higher than the mortgage interest rate, then you can actually make money by investing to pay off the mortgage, so that you can earn more. However, if the investment income is not as good as the mortgage interest rate, then prepaying the mortgage can help you save a lot of interest.
Of course, prepayment also has its risks. For example, you may lose some of your liquidity and may be stretched thin in case you need money urgently. So, before deciding to make a prepayment, you have to weigh the pros and cons.
3. How to make the most sensible prepayment choice?
Since there are pros and cons to prepaying your loan, how can you make the smartest choice? Here are a few tips for you to consider:
Know your financesFirst of all, you need to be aware of your income, expenses, and debts. This will allow you to figure out whether your financial situation will change for the better after you prepay your loan.
Consider future plans: You have to think about your future investment plans, home purchase plans, etc. If you're planning to buy a home or make other investments in the next few years, you may want to keep some liquidity.
Compare different repayment optionsThere are two ways to prepay: one is to shorten the loan term, and the other is to reduce the monthly payment. You can choose the most suitable method for you according to your actual situation. Generally speaking, if you are halfway through the term of the loan, it may be more appropriate to choose to reduce your monthly payments. If the loan term is still very long, it may be more cost-effective to shorten the loan term.
Fourth, case sharing
To help you better understand how to make a prepayment choice, I would like to share with you two real-life examples:
Case 1: Ms. Shen's prepayment decision
Ms. Shen has been working in Hangzhou for many years and has a large amount of savings. Her mortgage interest rate is 42%, recently considering whether to prepay the loan. After careful analysis, she found that her investment income was only 3%, which was much lower than the mortgage interest rate. So, she decided to repay the loan early and chose to shorten the loan term. In this way, she can not only save a lot of interest, but also reduce the pressure of monthly repayment.
Case 2: Mr. Cheng's prepayment strategy
Mr. Cheng also has mortgage pressure, and his mortgage interest rate is 356%, which is lower than Ms. Shen. He has a large certificate of deposit that is about to mature, with an interest rate of more than 4% per annum. After weighing the pros and cons, he decided to use the large certificate of deposit due to prepay the loan. This will reduce the pressure of debt without affecting his liquidity.
Prepayment is a complex issue that requires a lot of consideration. But overall, as long as you can weigh the pros and cons, understand your financial situation, consider your future plans, and compare different repayment options, you can make the most informed choice.
Finally, I would like to give you a piece of advice: before making a decision about prepayment, you may want to consult a professional or a customer service staff at your bank. They can help you get a more complete picture of the pros and cons and risks of prepayment, so you can make a more informed choice.
That's it for today's discussion about prepayment! Hopefully, this article will help you and make your mortgage journey easier!
Prepayment