What Prepayment Really Is
The logic: you buy back years of future interest in one stroke — the principal shrinks, so later interest accrues on a smaller base.
In essence: you give up liquidity in exchange for lower total interest. Whether it's worth it hinges on your investment return vs the mortgage rate.
3 Real Scenarios, Worked
Assume CNY 1M over 30 years at 3.50% LPR, 3 years in:
1. Returns at 5%. Don't prepay — invest the spare cash in index funds; 5% beats 3.50%.
2. Returns at 2%. Prepay CNY 300K partially and shorten the term — CNY 180K interest saved.
3. Returns at 0% (idle deposits). Prepay everything — save CNY 500K+ in interest.
Shorter Term vs Lower Payment
Shorter term: same payment, fewer months. Maximum interest saved, heavier monthly burden.
Lower payment: same term, smaller payment. Better cash flow, less interest saved.
Recommendations:
- Ages 30–40, rising income → shorter term to maximize savings
- Ages 40–50, peaked income → lower payment to keep cash for emergencies
3 Prepayment Traps to Avoid
Trap 1: prepaying in the early years is "free money". EMI is interest-heavy early on, so early prepayment saves the most — but by then you've barely touched principal.
Trap 2: forgetting the emergency fund. Keep 6–12 months of expenses before prepaying anything.
Trap 3: prepaying then re-borrowing. Many prepay the mortgage, then take a consumer loan — their effective rate jumps from 3.50% to 13%+. A big loss.