"To Enable Debt Repayment"... Launching Reduction of Early Loan Repayment Fees

[Asia Economy Reporter Park Sun-mi] The financial sector is discussing measures to reduce prepayment penalties on loans, starting with policy mortgages.

According to the financial sector on the 24th, the Korea Housing Finance Corporation is pushing for a plan to reduce prepayment penalties on policy mortgages by 70%. Choi Jun-woo, president of the Korea Housing Finance Corporation, recently stated regarding the plan to reduce prepayment penalties, "We are preparing a temporary measure to reduce prepayment penalties by 70% with the goal of encouraging existing borrowers to repay," adding, "We plan to announce the details within this month."

As voices grow louder that policy financial institutions need to reconsider prepayment penalties, Industrial Bank of Korea is also actively reviewing a reduction in prepayment penalty rates. Yoon Jong-won, president of Industrial Bank of Korea, agreed on the necessity of lowering prepayment penalty rates, saying, "We will review whether it is possible to temporarily adjust prepayment penalties to provide incentives for those who can repay part of their loans. We will actively examine to what extent this can be done."

Prepayment penalties are a type of 'penalty' fee imposed by banks when borrowers repay all or part of the loan principal before the maturity date after taking out a loan. Previously, Ko Seung-beom, chairman of the Financial Services Commission, stated at a National Assembly audit, "We will consider reducing the prepayment penalty on policy mortgage products from the existing 1.2% to around 0.6%."

However, it remains uncertain whether commercial banks will follow the trend of abolishing or lowering prepayment penalty rates, as there could be side effects. Chairman Ko expressed a cautious stance on abolishing prepayment penalties altogether, saying, "If the fees are abolished, a funding mismatch could occur, so it would be difficult to remove them all at once. The burden could be passed on to consumers due to rising interest rates."