My Home's Value Rose by 200 Million Won, but Payout Remains Unchanged... Soaring House Prices Trigger Surge in 'Jutaek Yeongeum' Cancellations (Comprehensive)

2098 Mid-Year Cancellations in First Half... 48% Increase Compared to Previous Year

Last Year’s New Subscriptions Totaled 10,982… Down 7.4% Year-on-Year

[Asia Economy Reporter Lee Kwang-ho] Jeon Su-min (alias), in her 70s, living in a 40-pyeong apartment in Yeonsu-gu, Incheon, is recently considering canceling her housing pension. She joined the lifetime payment type housing pension early last year using her apartment, which was worth 350 million KRW at the time, as collateral and has been receiving a monthly pension of 1.08 million KRW. However, the apartment price has risen by more than 200 million KRW in one year. If Ms. Jeon joins the housing pension now, the expected monthly payment would reach 2 million KRW.

Park Sang-eun (78, alias), living in Goyang-si, Gyeonggi-do, is also considering cancellation because although the house price has increased, the pension remains the same. He joined the housing pension at the end of 2019 using an apartment worth 550 million KRW as collateral and has been receiving 1.5 million KRW monthly, but in less than two years, the apartment price rose to around 900 million KRW. If Mr. Park joins the housing pension now, he could receive about 3 million KRW.

Seong Jun (67, alias), living in Seongbuk-gu, Seoul, recently canceled his housing pension. He had been receiving 2.15 million KRW monthly based on a 30-pyeong apartment collateralized at 700 million KRW in early 2017, but the current apartment price has reached 1.1 billion KRW, and the pension increase rate has not been reflected.

As housing prices soar, more people are considering or actually canceling their housing pensions. When canceling a housing pension, the total amount received must be repaid with compound interest, and rejoining with the same house is prohibited for three years. However, many calculate that the benefits gained from cancellation outweigh these drawbacks.

Midterm Cancellations Expected to Hit Record High This Year… Current Housing Prices Not Reflected in Pension Increase Rate

According to the Korea Housing Finance Corporation on the 23rd, the number of midterm cancellations of housing pensions in the first half of this year was 2,098, a 48% increase (993 cases) compared to 1,165 cases last year. Based on this trend, midterm cancellations of housing pensions are expected to reach a record high this year.

On the other hand, new subscriptions to housing pensions have been decreasing annually. Last year, there were 10,982 new subscriptions, down 7.4% from 11,172 the previous year. In the first half of this year, only 5,075 new subscriptions were recorded.

Although the Korea Housing Finance Corporation expanded the eligible age for housing pension enrollment from 60 to 55 years old in April last year and adjusted the eligible house price from market price 900 million KRW to official assessed price 900 million KRW in December, these measures have shown little effect. The increase in midterm cancellations and the slowdown in new subscriptions are analyzed as phenomena caused by the significant rise in housing prices.

Introduced in 2007, the housing pension is a loan where the current residence is used as collateral to receive a fixed monthly pension amount. The higher the house price at the time of enrollment, the larger the pension amount. Therefore, if the house price rises significantly after joining, it may be better to cancel the pension and sell the house or rejoin.

When canceling the pension, the guarantee fee, which is about 1.5% of the house price, is not refunded, and rejoining is prohibited for three years, among other disadvantages. However, if the profit from the house price increase is greater, cancellation may be worthwhile.

Despite Disadvantages Like 3-Year Rejoining Ban, Rising House Price Gains Drive Surge in Cancellations

A Korea Housing Finance Corporation official explained, "Midterm cancellations occur due to various reasons such as property rights exercise by the subscriber through house sales, elderly care for children, and admission to nursing homes. Housing pensions are reverse mortgage loans involving financial costs like interest and guarantee fees, but recently, cases of disposing of owned houses or downsizing to prepare retirement funds due to changes in the subscriber’s circumstances are increasing."

He added, "While it is a natural economic decision for subscribers to secure necessary retirement funds through house sales, if midterm cancellation is made simply because house prices have risen, it is necessary to fully consider possible situations that may arise afterward."

Meanwhile, since his inauguration in February this year, Choi Jun-woo, president of the Korea Housing Finance Corporation, has been making various efforts to increase housing pension subscribers, including launching a trust-type housing pension and implementing the 'Housing Pension Guardian Account,' a seizure-protected account.

President Choi emphasized, "The Korea Housing Finance Corporation will continue to strive to enhance product features and user convenience by introducing new methods to expand subscribers’ choices."