Financial System Changes in July... Easing of Mortgage Loans for Non-Homeowners and Reduction of Maximum Interest Rates

'4th Generation Silson Insurance Product' Launched... Application of Differential Premium System

[Asia Economy Reporter Kwangho Lee] Loan regulations for genuine homebuyers without housing, scheduled for the second half of the year, will be eased. Additionally, the legal maximum interest rate will be lowered from 24% to 20%, and the 4th generation indemnity insurance product will be launched.

According to financial authorities and the financial sector on the 27th, starting in July, a super-long-term mortgage loan with a 40-year maturity will be introduced to reduce the burden of homeownership for newlyweds and young people.

First, a super-long-term mortgage loan (fixed interest rate) with a 40-year maturity will be introduced for Bogeumjari Loan and Qualified Loan products targeting youth aged 39 or younger and newlyweds within 7 years of marriage.

The Bogeumjari Loan can be used when purchasing a house priced at 600 million KRW or less, with an income limit of 70 million KRW or less (85 million KRW for newlyweds), and the loan limit per household will be expanded from the current 300 million KRW to 360 million KRW.

The Qualified Loan can be obtained when purchasing a house priced at 900 million KRW or less without income restrictions, with a loan limit per household of 500 million KRW, but limits may be exhausted depending on the bank and timing.

The financial authorities expect that using the 40-year maturity product instead of the existing 30-year maturity product will reduce the monthly principal and interest burden by up to 15% and also reduce the risk of interest rate increases.

Furthermore, through the Korea Housing Finance Corporation’s special guarantee, the limit for the 'Youth Customized Jeonse/Wolse Loan' that lends rental deposit funds at an interest rate in the 2% range to youth aged 34 or younger will be increased from 70 million KRW to 100 million KRW.

Also, from July, the legal maximum interest rate will be lowered from 24% to 20%. The financial authorities have prepared improvements to the lending industry system to prevent contraction of the lending sector and a decrease in credit supply to low-income people following the enforcement of the 'Loan Business Act and Interest Rate Restriction Act Enforcement Decree.'

The current upper limit on brokerage fees for loan businesses (4% for loans up to 5 million KRW, 3% for loans exceeding 5 million KRW) will be reduced by 1 percentage point to lessen the burden on lending companies.

Incentives for deregulation will be provided to excellent loan businesses. The financial authorities plan to select excellent loan businesses based on legal compliance and credit loan performance for low-credit borrowers. Incentives for excellent companies include bank funding, use of online loan brokerage platforms, and relaxation of loan regulations (such as expansion of total asset limits). Until now, lending companies had difficulty accessing bank loans and online platforms. Deregulation will reduce funding and recruitment costs.

Separately from deregulation of the lending industry, supervisory functions will be strengthened to address blind spots in consumer protection. To enhance the effectiveness of sanctions on loan businesses, a 'substitute penalty for business suspension' will be introduced.

Along with this, the 4th generation indemnity insurance product will be launched in July. The newly released indemnity insurance features a premium differentiation system (discounts and surcharges) applied only to non-reimbursed special contracts, where if the insured claims a lot of insurance money for non-reimbursed medical treatments not covered by health insurance, premiums increase, and if claims are low, premiums decrease.

Also, the re-enrollment cycle for indemnity medical insurance (cycle for coverage changes) will be adjusted from the existing 15 years to 5 years.