Prepayment Wave (Tiqian Huandai): Following the Trend or Being Rational?

Over the past two years, China has seen an unprecedented "Prepayment Wave". Long queues have formed at banks, and appointments are needed months in advance just to pay money back to the bank.

Why? Because financial returns have dropped. Previously, buying any financial product yielded 4-5%, now it's hard to find 3%. Meanwhile, interest rates on many existing mortgages are still above 4% or even 5%.

The Problem: Asset Shortage and High Debt

When Investment Return < Mortgage Rate, holding cash is a loss.

This is why everyone is rushing to deleverage. Logically, this is completely correct.

The Agitation: The Cost of Blindly Following

However, not everyone should follow the trend.

If your mortgage rate has already been lowered to 3.6% via LPR, and you have a well-run business bringing in 10% returns, or you have long-term USD asset allocation, then prepaying is a mistake.

Prepaying consumes your liquidity. Once money is paid back to the bank, trying to borrow it again (for business or consumer loans) often faces stricter audits and shorter terms.

The Solution: Calculate Your "Spread Threshold"

You need to make a simple comparison:

1. A = Your Real Mortgage Rate (LPR + Basis Points).
2. B = The Risk-Free Return on Your Cash (Certificates of Deposit, Government Bonds).

• If A > B + 1%: Definitely prepay. The gap is too large for investments to catch up.
• If A ≈ B: Keep the cash. Liquidity itself has value (for unemployment, illness).
• If A < B: Do not prepay. You are using the bank's money for arbitrage.

📱 Amorti Simulation Decision

Don't rely on feelings, let the data speak.

1. Enter your mortgage information in AmortiApp.
2. Simulate prepaying with 500,000 yuan.
3. Note the total interest saved and divide by the remaining years to get the Return on Capital.
4. Ask yourself: "Can I earn a higher return than this elsewhere?"

If the answer is "No," then go queue up to repay.

Deleverage rationally, refuse to follow blindly.

Calculate My Return on Capital