The loan contract shows that the repayment method is “equal principal and interest”.
Mr. Pu, a citizen of Nanjing, Jiangsu Province, applied for a RMB 1.17 million (the same below, about US$180,000) commercial housing loan from Minsheng Bank Nanjing Branch in 2013, with a loan term of 20 years and an agreement on the repayment method of equal principal and interest. However, Mr. Pu recently discovered that the principal amount that he had not returned after paying the mortgage for more than seven years was still 1.17 million, and had not been reduced by a single cent.
The bank replied that the mortgage loan uses the interest first and then the principal repayment method, and the principal amount of 1.17 million is returned at once after maturity. The relevant staff said that the staff handling the mortgage business has long since left, and the higher authorities are now properly handling the matter.
The Red Star News reported that in October 2013, Mr. Pu in the Minsheng Bank Nanjing Branch, West Phoenix Branch for a combination of mortgage business, the total loan amount of 1.47 million yuan, including housing fund loans 300,000 yuan, commercial loans 1.17 million yuan, the loan period of 20 years.
Mr. Pu said that when the contract was signed, it was agreed that the discounted annual interest rate for the commercial loan of 1.17 million yuan would be about 4.2%, and the repayment would be made on an equal principal and interest basis, with a monthly repayment amount of 8,092.95 yuan.
In November 2020, Mr. Pu wanted to change his house, and when he checked his credit report, he found that after seven years of repayment, his mortgage principal had not changed.
According to the equal principal and interest repayment method, the monthly repayment amount remains the same, and the principal amount of repayment increases and the interest decreases month by month. Mr. Pope’s monthly repayment amount is 8092.95 yuan, of which the principal should increase from 2600 yuan and the interest should decrease from 5500 yuan.
However, according to Mr. Pu’s loan repayment details, from February 2014 to the present, the principal amount returned has been 0, but the interest is being returned every month.
The Minsheng Bank customer service manager replied to Mr. Pu: “This mortgage uses the interest first and then the principal repayment method, returning the interest first and then returning the principal amount of 1.17 million in one lump sum after maturity, similar to a consumer credit loan,” the report said.
Mr. Pu said: “I did not ask for a change in the repayment method, but the bank changed it without permission, which is a major breach of contract. Mr. Pu also calculated that if the annual interest rate of about 4.2% was agreed at that time, the 20-year mortgage loan with interest first and then principal would cost 300,000 to 400,000 dollars more than the equal principal and interest.
According to reports, all banks currently use both equal interest and equal principal repayment methods for their mortgages. The equal principal refers to the decreasing monthly repayment amount, in which the principal amount of the monthly repayment remains the same and the interest rate decreases every month.
An Agricultural Bank of China credit manager said that the interest first and then the principal means that the borrower can pay the interest first and the principal last, which is only applicable to short-term loans such as business loans and consumer loans. He said it was possible that the staff made an operational error when entering the loan and misclassified the mortgage as other loans.
The customer service manager said that the repayment is actually “interest first and then principal”.
The principal return amount is always 0.
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