The spread gives rise to the re-emergence of "loan conversion to reduce interest

After the Loan Prime Rate (LPR) was reduced, the interest rates for newly issued mortgage loans decreased accordingly. However, for existing mortgage customers, the benefits of the rate cut will only take effect on the reset date, which is typically January 1st of the following year.

Even after several rounds of reductions, there is still a significant interest rate differential compared to business and consumer loans with rates ranging from 2% to 4%. Many loan intermediaries are taking advantage of the situation to promote the "loan conversion and interest rate reduction" business, claiming to collaborate with banks to help homebuyers replace their mortgages with business or consumer loans at rates of 2% to 3% and 3% to 4%, respectively, to reduce interest expenses.

According to an investigation by First Financial Daily reporters, there are various risks in the operation of the aforementioned business, such as mismatched loan terms, the ability to successfully renew loans during their existence, and even some intermediaries packaging or forging loan application materials to defraud loans, which could affect the credit of the borrowers.

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In the view of industry insiders, the "loan conversion and interest rate reduction" business is fraught with legal risks, and homebuyers are advised to make careful choices.

The "loan conversion and interest rate reduction" scheme re-emerges.

On February 20th, the day the Loan Prime Rate (LPR) was adjusted, a homeowner named Yangming (a pseudonym) from the Qinyu Xiaoting community in Gongshu District, Hangzhou, received a call from a customer manager who claimed to be from the loan service department of a bank. The caller stated that they had internal channels to apply for a quota to convert his existing commercial housing loan to a "loan conversion and interest rate reduction," changing the current 4.9% mortgage interest rate to a 2.8% business loan interest rate, potentially saving more than 30,000 yuan in interest for a loan amount of 1 million yuan per year.

When the reporter, posing as a homebuyer, consulted several loan intermediaries, they all claimed to represent the official bank and offered similar methods for mortgage replacement, usually converting the homebuyer's mortgage into a business or consumer loan.

A loan intermediary named Weiwei (a pseudonym) told the reporter that one method is to convert the mortgage into a business loan, using the property as collateral and applying for the loan in the name of a business operation, with an annual interest rate generally ranging from 2% to 3%, significantly lower than the current high existing mortgage interest rates.

When the reporter mentioned that they were a salaried worker without a business, Weiwei stated that if they did not have a company registered for at least one year, the bank they cooperate with could provide services to register a shell company, and even if the shell company did not conduct business or have operational cash flow, Weiwei claimed, "it can be easily resolved."

Following the guidance of the aforementioned intermediary, Yangming provided his property deed, loan contract, and several other documents for their assessment. After the assessment, the intermediary told him, "it can be processed," but it was necessary to first pay off the mortgage, and the "bridge financing" for this would be provided by them, charging an interest fee of 0.06% per day. For example, for a loan of 1 million yuan, this would generate an interest fee of 600 yuan per day, and the interest fee for 10 days would be as high as 6,000 yuan.When the reporter mentioned having only a small amount of mortgage left and wanting to repay it early without using additional funds to clear the remaining mortgage, Wei Wei suggested that a consumer loan could be arranged. There is no need to settle the mortgage, and the loan can be directly repaid after the funds are disbursed. The documents are submitted to the bank through an intermediary, and once the bank approves and grants the loan, the annual interest rate is slightly higher than that of a business loan, generally ranging from 3% to 4%.

Many homebuyers are also confused about the fact that mortgage terms can be as long as 30 years, while the terms for business and consumer loans after "loan conversion" are much shorter, typically with a maximum of 10 years for business loans and 3 years for consumer loans.

The reporter questioned the loan intermediary about the above confusion, and an intermediary from Jiading, Shanghai, told the reporter that it is common to renew the loan every 3 to 5 years, "negotiating the renewal with the bank in advance," and when the reporter asked what would happen if the renewal was unsuccessful, the intermediary said, "leave it to the professionals, there will be no problem."

"Loan conversion to reduce interest rates" is fraught with risks.

The loan conversion process from mortgage to business or consumer loans, as described by loan intermediaries, is fast, convenient, and can help homebuyers save a lot of interest expenses without any risk. However, there are multiple hidden risks behind this.

Hu Qing (a pseudonym), who has been in the loan intermediary business for more than ten years, told the reporter that the process of applying for a loan through a business loan requires the involvement of credit managers from both the mortgage department and the small and micro enterprise loan department. In addition, many intermediaries obtain the qualification for applying for business loans by forging financial statements and packaging shell companies. If discovered by the bank, the homebuyer's loan funds will be recovered in advance by the bank, facing the risk of capital chain rupture.

On the other hand, the "loan conversion to reduce interest rates" process requires homebuyers to bear many high costs. For example, when homebuyers borrow "bridge funds" from loan intermediaries to repay the remaining mortgage, they need to bear high interest expenses. At the same time, after the entire process is completed, homebuyers also need to pay high handling fees, "generally, the intermediary fee is at the level of 1.5% to 2.5% of the transaction amount," Hu Qing said.

At the same time, "loan conversion to reduce interest rates" also has many hidden costs. For example, the key materials required for applying and registering for business loans, such as business licenses, all need to be borne by the borrower. Moreover, many intermediaries may leak or sell relevant information after obtaining the important personal information of homebuyers for the purpose of illegal benefits under the pretext of evaluation.

There are significant differences between business loans, consumer loans, and mortgages in terms of loan conditions, interest rates, terms, and repayment methods. After "loan conversion," homebuyers often have to bear the risk of changes.

A person in charge of the credit department of a state-owned bank told the reporter that business loans and consumer loans are short-term loans, and interest rates fluctuate with market conditions. Generally speaking, when the loan term expires, the bank will require the borrower to repay the principal in one lump sum, and then decide whether to renew the loan based on the borrower's comprehensive conditions. The bank cannot guarantee whether the loan business can be successfully handled at that time. Even if the renewal business is successfully handled, it cannot guarantee that the loan interest rate will be the same as when it was first handled.Submitting application materials to banks every 3 to 5 years also carries risks. The person in charge mentioned above stated that there is a possibility that loan intermediaries may package or even forge the application materials provided to borrowers. If it is found that borrowers have engaged in the fabrication of documents, banks will take back loans in advance or terminate contracts, and borrowers will also be included in the credit blacklist.

Many industry insiders told reporters that converting "mortgage loans" to "business loans" is an illegal act of illegal lending and loan transfer. Wang Jiahong, a real estate lawyer at Beijing Jin Su Law Firm, said that the act of repaying "mortgage loans" through "business loans" is not protected by law. If the loan obtained through a business loan is not used for business operations but for repaying mortgage loans, it is an act of illegality, regulation violation, and breach of contract terms.

The business of "loan conversion and interest rate reduction" has a long history, but its risks have been repeatedly highlighted by regulators and banks. At the end of last year, many banks issued statements in a concentrated manner, warning consumers of the hidden risks in "loan conversion and interest rate reduction" and loan agency services, and emphasized that bank loan businesses have not cooperated with intermediary agencies. In February of this year, the central bank and the China Banking and Insurance Regulatory Commission held a symposium, mentioning that in response to some borrowers' illegal use of business loans and consumer loans for early repayment, commercial banks are required to continue to do a good job in pre-loan and post-loan management and strengthen risk warnings.

The reporter noticed that since the second half of last year, several banks have been penalized for the illegal inflow of credit funds into the real estate market. Institutions including the Lincang Branch of the Bank of China, the Changchun Branch of the Agricultural Bank of China, Jiangxi Shangyuan Rural Commercial Bank, Hubei Yuan'an Rural Commercial Bank, Qinghai Gonghe Rural Commercial Bank, Guizhou Duyun Rural Commercial Bank, and Qinghai Guoluo Rural Commercial Bank, as well as related responsible persons, have been punished. Taking the Changchun Branch of the Agricultural Bank of China as an example, it was fined 3.2 million yuan by the Jilin Banking and Insurance Regulatory Bureau, and six related responsible persons were given warning punishments.