In recent years, the widening gap between old and new mortgage rates has become a hot topic of concern for borrowers. Starting from a certain date, a dynamic adjustment mechanism for existing mortgage rates has been introduced to address this issue from a systemic perspective. What aspects does this mechanism primarily focus on to improve the pricing of existing mortgage rates? And what impact will it have on borrowers?

To address the widening gap between old and new mortgage interest rates, the first step is to identify the key factors driving this increase. Currently, the vast majority of mortgage interest rates in China are formed by adding a spread to the Loan Prime Rate (LPR). This means that the mortgage interest rate is determined by two factors: one is the LPR, which is published monthly, and the other is the spread agreed upon between the borrower and the bank at the time of contract signing.

From this perspective, although the interest rates of both new and existing mortgages will change according to adjustments, the timing of these adjustments differs. Newly issued mortgages typically use the latest published rate at the time of issuance as the reference for pricing, while existing mortgages are subject to the contract-specified reset date, and can only be adjusted on that date. Before the improvement of the personal housing loan interest rate pricing mechanism, borrowers had only one annual reset date.

On the date, the rate for loans with a maturity of more than five years decreased by 25 basis points to 4.2%. If a borrower's repricing date is on the 20th of the month, his existing mortgage interest rate will only be adjusted based on the then-current conditions on January 20th of the following year. However, new mortgage loans may soon benefit from the favorable impact of this 25 basis point reduction.

From the perspective of the added basis point range, whether it's for newly issued mortgages or existing ones, the added basis points often remain fixed throughout the contract period. Beijing is one of the cities where there is still a lower limit for mortgage interest rates. Last month, the minimum added basis points for the first mortgage in the six main districts of Beijing was 55 basis points, which was adjusted to minus 40 basis points this month. This means that the mortgage interest rates newly issued this month have seen a decrease of 95 basis points in the added basis point range compared to six months ago.

The mortgage contract term is generally long, mostly lasting two or three decades. The fixed加点幅度 (interest rate spread) cannot reflect changes in factors such as borrower creditworthiness and market supply and demand. Once the market situation changes, it can easily lead to an expansion of the interest rate spread between new and old mortgages. Based on this, the People's Bank of China issued a public announcement on a certain date, clarifying the matters related to the improvement of the interest rate pricing mechanism for commercial individual housing loans. On a certain date, multiple banks issued public announcements to further refine the arrangements, mainly optimizing and improving the floating-rate pricing of commercial individual housing loans from two aspects: the adjustment of the加点幅度 (interest rate spread) and the adjustment of the re-pricing cycle.

How will the adjustment of the re-pricing cycle change after this adjustment? According to the recent announcements from multiple banks, starting from a certain date, existing mortgage borrowers can negotiate with banks to re-agree on the re-pricing cycle. New mortgage borrowers can also independently choose the re-pricing cycle. The adjusted re-pricing cycle can be selected as 1 month, 3 months, or 6 months. Previously, the shortest re-pricing cycle for personal housing loan interest rates was 1 year.

Mr. Jiao, a resident of Jinan, Shandong, purchased a house with a loan in a certain month and year, with the contract specifying a reset date of January 1st. This year, the interest rate for loans over five years has dropped by a total of 20 basis points. According to previous regulations, Mr. Jiao could only benefit from this drop starting from January 1st of the following year. However, if he adjusts the reset cycle to three months, the reset dates would be January 1st, April 1st, July 1st, and October 1st, allowing him to enjoy the benefits of the rate drop sooner without having to wait until the following year. In this year, he can make adjustments up to four times, enabling Mr. Jiao to benefit from each "rate cut" earlier.

It is important to note that during a downward interest rate cycle, the shorter the repricing period, the sooner borrowers can benefit from the lower interest rates; however, during an upward cycle, borrowers will also bear the burden of interest rate hikes earlier. Several banks have stated that within the duration of the same loan, customers can only apply for an adjustment once. Therefore, borrowers should consider their own circumstances carefully and make prudent decisions, making the most of this one-time choice.

After the implementation of the dynamic adjustment mechanism for the date, how will the point-based adjustment change? Borrowers are not unfamiliar with the adjustment of the point-based amount, as many have already enjoyed the benefits of bulk rate reductions by banks at the end of the month. According to the arrangement, the vast majority of existing mortgage rates will be adjusted to no less than a reduction of several basis points, and this adjustment pertains to the point-based amount. While banks proactively bulk-adjust existing mortgage rates for convenience, this is not a long-term solution. It is necessary to further deepen the reform of interest rate marketization and introduce more flexible mechanisms.

The solution provided by the People's Bank of China is that when the deviation between the old and new mortgage interest rates reaches a certain level, borrowers can negotiate with banks to change the spread. Several banks have clarified that once the spread deviation between the old and new mortgage interest rates exceeds a basis point, borrowers can apply for an adjustment. This has become the "threshold" for triggering adjustments and is one of the key aspects of the mechanism's implementation.

It is important to understand that if the deviation is too large, borrowers may experience a psychological gap, potentially leading to early repayment of loans. If the deviation is too small, it may result in frequent contract resets, placing greater pressure on banking operations. However, this deviation should not be simply interpreted as the difference between the old and new mortgage interest rates. Instead, it should be viewed as the difference between the borrower's mortgage interest rate premium and the average premium of newly issued mortgage interest rates nationwide.

If the borrower is unclear about the mortgage interest rate spread, they can check it through the mobile banking app or the lending branch. As for the spread corresponding to the national average mortgage interest rate for new loans, the bank has also provided a calculation method, involving the average mortgage interest rate for new loans across the country announced by the central bank for the previous quarter, and the average value for the current quarter over the years.

For instance, according to the latest data released on the official website of the People's Bank of China, the weighted average interest rate for newly issued personal housing loans nationwide in the third quarter was .%, while the average for terms over one year was .%, corresponding to a spread of .% minus .%, or a reduction of basis points. If the spread deviates by more than basis points from this level, meaning the spread for the mortgage interest rate is higher than the reduction of basis points, borrowers can negotiate with the bank to request the spread be adjusted to the reduction of basis points.

Once the adjustment "threshold" is reached, how should borrowers apply for the adjustment? Multiple banks have stated that starting from the month day, borrowers who meet the criteria need to actively apply to the bank, and the adjustment can only be made after the bank's approval. Borrowers can submit their adjustment applications through mobile banking, the loan handling branch, etc. ICBC has explicitly stated that it will start accepting applications for the adjustment of the re-pricing cycle no later than the month day. Customers can apply for the adjustment of the re-pricing cycle through the "Loans - Mortgage Re-pricing Cycle Adjustment" section of the mobile banking app. After the approval, the new re-pricing cycle takes effect immediately.