Household Debt Measures Announced... Mortgage Loan Limits Reduced When Holding Credit Line

DSR Credit Loan Repayment Maturity Shortened from 7 Years to 5 Years
How Much Will Apartment Mortgage Loans Decrease?

[Image source=Yonhap News]

[Asia Economy Reporter Oh Hyung-gil] Ahead of the household debt measures announcement next week, financial consumers are paying close attention to how much their eligible mortgage loans might be reduced.

Financial authorities are considering advancing the schedule for the total debt service ratio (DSR) regulation.

According to the DSR regulation for individual borrowers introduced in July, when obtaining a mortgage loan secured by a house worth more than 600 million KRW in real estate regulation areas (speculative areas, speculative overheating districts, or adjustment target areas) or receiving a credit loan exceeding 100 million KRW regardless of annual income, the DSR must not exceed 40%.

The repayment period applied to credit loans such as overdraft accounts has been shortened from the existing 10 years to 7 years. If the annual income is the same, this means the annual principal and interest amount calculated for the overdraft account increases, thereby reducing the additional mortgage loan limit.

According to the financial sector on the 24th, a borrower with an annual income of 50 million KRW and an overdraft account (credit limit loan) of 50 million KRW who applies for a mortgage loan secured by a Seoul apartment valued at 700 million KRW can currently receive up to 200 million KRW.

The overdraft account interest rate is assumed to be 3.95% per annum, and the mortgage loan interest rate and installment repayment period (equal principal and interest method) are assumed to be 3.47% per annum and 30 years, respectively.

Since the collateral corresponds to a 'regulated area (Seoul) house exceeding 600 million KRW,' if this borrower keeps the 50 million KRW overdraft account and adjusts the total annual principal and interest repayment amount to a DSR of 40%, that is 20 million KRW (annual income 50 million KRW × 40%), they can only receive a mortgage loan of 200 million KRW.

If the implementation timing of the additional DSR regulation plan, which was scheduled to be applied from July 2022, is advanced, this borrower's limit will be further reduced.

The core of the additional regulation is to shorten the repayment period of credit loans used in DSR calculation from 7 years to 5 years. According to this standard, the annual principal and interest repayment amount for the borrower's overdraft account will increase from 9.12 million KRW to 11.98 million KRW.

In this situation, to keep the total annual repayment amount including the mortgage loan principal and interest below 20 million KRW, the maximum possible mortgage loan is limited to 150 million KRW.