Chinese banks to slash mortgage rates

Bank of China, Industrial and Commercial Bank of China (ICBC) and other Chinese commercial lenders will trim the interest rates on existing mortgages by 30 basis points below the benchmark loan prime rate to ease the burden on borrowers.

The adjustments involve first and second-time apartment purchases and are applicable to most individual mortgages that were taken out before the recent round of mortgage rate cuts, the banks said.

A saleswoman (R) shows a model of a newly developed residential area to a potential homebuyer. China Daily

However, the adjustments are not applicable to mortgages on second-time apartment purchases in Beijing, Shanghai and Shenzhen. Nor do they apply to loans for commercial-use apartments, housing provident fund loans, and housing provident fund loans combined with housing loans, they added.

The rates will be adjusted automatically for eligible mortgages and borrowers do not need to supply any additional documents. But those who took out fixed or benchmark rate-priced mortgages will have to apply to turn their mortgages into floating rate-priced ones.

The ICBC will make the adjustments on Oct. 25, and the other banks will do so by Oct. 31, they said.

The move will trim the mortgage rate on existing mortgages to 3.55%, lower than the average rate of mortgages newly issued in the first eight months which was 3.61%, according to data from People’s Bank of China. The current average rate of outstanding mortgages was 4.06% as of July 31.

This will result in savings of 170 yuan (US$24) a month for a person who has taken out a 1 million yuan mortgage at a rate of 3.85% with a 30-year payback period, should the rate be adjusted to 3.55%, according to ICBC calculations. This comes to a total savings of 61,200 yuan.