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Do you have to pay liquidated damages for early repayment of loans? Precautions for early repayment

Buyers who buy houses with loans generally apply to the bank for prepayment after they have some funds on hand. Usually, certain liquidated damages must be paid for prepayment. So, how much is the penalty? What are the precautions for prepayment? Let's have a look!

1、 How much penalty should I pay for early repayment?

Liquidated damages arising from prepayment is a clause jointly recognized in the contract signed by both parties. Once the borrower pays off all the loan or most of the principal in advance within the specified time, the borrower will pay liquidated damages, which are generally collected in two forms:

1. The penalty is interest for several months

Taking the Bank of China as an example, it stipulates that if the repayment is made in advance within one year, the bank will charge three months of interest as liquidated damages; In case of prepayment within 1-2 years, the bank will charge two months' interest as liquidated damages; In case of prepayment within 2-3 years, the bank will charge one month's interest as liquidated damages; After 3 years, the mortgage contract shall prevail.

2. Calculated as a percentage of the prepayment amount (generally 1% - 3%)

Taking China Construction Bank as an example, it stipulates that if the repayment is made in advance within one year, the bank will charge 3% of the prepayment amount as liquidated damages; In case of prepayment within 1-2 years, the bank will charge 2% of the prepayment amount as liquidated damages; In case of prepayment within 2-3 years, the bank will charge 1% of the prepayment amount as liquidated damages; After 3 years, there is no liquidated damages.

The first year of the loan is also a year with high interest, so the bank will try its best to limit the prepayment. It should be noted that when signing the loan contract, we should clearly see the proportion of high liquidated damages.

2、 What are the precautions for prepayment?

1. Understand your current repayment situation

As Xiaobian said above, you are not necessarily suitable for prepayment, especially for friends who enjoy interest rate discounts and provident fund purchase policies, prepayment is not worth it.

2. Make an appointment in advance

During the loan period and one year after the loan is issued, with the consent of the bank, a written application may be made to repay part or all of the loan in advance. General banks need 2-7 working days to handle this business. Each bank has different regulations on early repayment of the loan. The lender must understand the operation process of the lending bank before deciding to repay the loan in advance.

3. Provisions on penalty interest for prepayment

At present, for most small and medium-sized joint-stock banks, there are few additional penalty interest for home buyers who want to repay the loan in advance and require payment of liquidated damages. However, some large state-owned banks need to pay liquidated damages to varying degrees. Some banks will specify in the loan contract that prepayment may require payment of certain liquidated damages.

4. Is there a better financial channel

Among bank loans, housing loans can be regarded as a kind of loan with a very low interest rate. Nowadays, with the development of Internet finance, there are more and more financial channels for residents. For these families, choosing to obtain with idle funds may be greater than the interest saved by paying back the loan in advance. Therefore, families with financial management mind may as well make effective use of their funds and make money with money. But it should be noted that financial management is also risky.

5. Remember to surrender after prepayment

After the lender settles all the balance in advance, the bank will issue a settlement certificate. The borrower can call the relevant insurance company with the original loan settlement certificate issued by the bank, the original copy of the original policy and the invoice to make an appointment for surrender. When the borrower handles the loan, the bank will handle the mortgage registration.