After a large number of unfinished buildings in China caused a wave of supply cuts. Big media in China has recently begun to discuss the “early repayment of loans and less interest.” On this topic, some commentators pointed out that the housing price increase cannot outpace the interest rate, and early repayment of a loan can only partially stop the loss. There are also comments that the official media that induces people to repay the loan early is a trap, and they hope everyone will not be fooled.

NetEase recently reported that many Beijing residents were lining up to apply for “early repayment” to their mortgage loans. Sound Of Hope quoted information from Zhengzhou media, the same situation occurred locally, and it was said that some people saved more than $103,000 or 700,000 yuan in interest by “early repaying the loan.”

At the same time, Beijing Bank of Communications recently issued a notice saying that from Nov. 1, if personal mortgage loans and online mortgage loans are repaid early, then they need to pay compensation to the bank, which is 1% of the principal amount of the early repayment. A large number of people baulked at the announcement, criticizing this provision as unreasonable. Subsequently, the Bank of Communications temporarily removed the notice due to pressure from public opinion.

Mr. Guan, the owner of a real estate company in southern China, said that in fact, Chinese banks have always operated this way. More than 10 years ago, he wanted to repay a loan early, but the bank wouldn’t agree. In the end, he trusted the relationship, went through the back door to negotiate with the bank, and finally ended the mortgage contract at the cost overpaying tens of thousands of yuan in interest. Mr. Guan told Sound of Hope on Aug 12: “We have money, but we don’t want to keep paying for a house for 30 years. It must be paid immediately, and then the house is mine, so that I can transfer it.”

Xie Tian, ​​a professor at the Aiken School of Business at the University of South Carolina, said that early repayment in the United States does not require any interest. It is obviously unreasonable for Chinese banks to charge interest to ordinary people who repay their loans early.

According to Chinese official media reports, the person in charge of personal loans at a branch of a major state-owned bank in Shijingshan, Beijing, said that since the 2020 pandemic, the number of customers who have repaid their mortgages in advance has increased. In April, the Central Bank of China reported that the national household loans decreased by $32.18 billion or 217 billion yuan. Personal housing loans fell by $8.97 billion or 60.5 billion yuan.

Sound of Hope quoted some experts’ judgments. The commentator Wen Zhao said that with the spread of the pandemic and the CCP’s insistence on clearing it, it is a fact that China’s economy has fallen into a long-term recession. People are all at risk of pay cuts and layoffs. If the income falls, the monthly payment of buying a house becomes a heavy burden, and repaying the loan early becomes an option.

Wen said: “You have cash on hand and you have nowhere to invest. It is better to speed up the repayment of debt and let yourself bear less interest. Take Beijing as an example. After the introduction of the control policy in 2017,  five and a half years passed, the average house price in Beijing is now rising. Only 10%, and the loan interest paid in the past five and a half years, according to some statistics, has reached 30% of the average house price in 2017. You see, 10% compared to 30%, that is to say, if you buy a house before the regulation is applied, the average loss of these buyers in Beijing during the five and a half years of buying a house has reached 20%.”

Xie believes that the hype by the state media is to encourage people to repay their loans early. This is a trap, and everyone should not be fooled.

Xie said: “The current loan interest rate of China Banks is not particularly high. The CCP is obviously trying to alleviate the problem of tight funds for banks and big developers. The CCP further squeezes the leaks and requires the common people to take out more cash to ease the CCP’s problem of capital flow shortage. 

The CCP has obviously realized that China’s housing prices will soon face a collapse. The prices in many cities have fallen by half and still cannot be sold. This shows that the original borrowers were caught in the time of overestimated housing prices. In fact, what they should do is stop the loan. They should renegotiate with the bank and ask for this to be lowered. Because if you repay the loan in full now, you are 100% cheated by the CCP. You pay such a high price and put it in your bank. The loan has been repaid, your house is not worth that much, it is only half of the original value, so it is equivalent to handing over your money to the Central Bank of China.”

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