"Switch to a Fixed Interest Rate as Low as 3.7%"... 25 Trillion Won Safe Conversion Loan Supply

Financial Services Commission Announces 'Safe Conversion Loan Promotion Plan'; Applications Open from Next Month 15
Variable Interest Rates Converted to Fixed Rates Until Maturity

Eligible for 1-Homeowners with Combined Spousal Income Below 70 Million Won
Housing Price Targeted Under Market Price of 400 Million Won

Bogeumjari Loan Interest Rates Also Reduced to 4.25~4.55% Range

Kwon Dae-young, Director General of the Financial Policy Bureau at the Financial Services Commission, is holding a back briefing on the 'Detailed Implementation Plan for the Safe Conversion Loan' on the afternoon of the 9th at the Joint Briefing Room of the Seoul Government Complex.

[Asia Economy Reporter Shim Nayoung] A 25 trillion won-scale 'Safe Conversion Loan' product that applies fixed interest rates until the maturity of mortgage loans for low-income households will be launched next month. This measure was introduced to reduce the burden as interest payments for ordinary people have ballooned like a snowball during the period of rising interest rates.

The target is real demand borrowers holding mortgage loans with variable interest rates or mixed interest rates (switching to variable interest rates after 5 years from the loan date). The Safe Conversion Loan interest rate is at a minimum level of 3.80%, and low-income youth can receive rates as low as 3.70%. There is no prepayment penalty.

No prepayment penalty... fixed interest rate until maturity

According to the 'Safe Conversion Loan Promotion Plan' announced by the Financial Services Commission on the 10th, applications for the Safe Conversion Loan containing these details will be accepted from the 15th of next month at six major commercial banks (Kookmin, Shinhan, Nonghyup, Woori, Hana, and IBK) and the Korea Housing Finance Corporation. ▲The target is borrowers with variable or mixed interest rate loans executed before the 17th of this month at first-tier and second-tier financial institutions, ▲who are one-homeowners with a combined household income of 70 million won or less, ▲and the housing price must be 400 million won or less (based on KB market price and Korea Real Estate Board market price).

Mortgage loans executed at second-tier financial institutions such as insurance companies, mutual finance, and savings banks can also apply. However, mortgage loans with a maturity of 5 years or more and a fully fixed interest rate until maturity, as well as policy mortgages (Bogeumjari Loan, Eligible Loan, Didimdol Loan), are excluded from the Safe Conversion Loan application.

Applicable interest rates are 3.80~4.00%, low-income youth 3.70~3.90%

When terminating the existing mortgage loan, the financial institution's prepayment penalty (usually 1.2%) is waived. The loan limit is set up to a maximum of 250 million won within the existing loan range. The loan-to-value ratio (LTV) of 70% and the debt-to-income ratio (DTI) of 60% are uniformly applied. The debt service ratio (DSR) is not applied.

The interest rate applied to borrowers is 3.80~4.00%, and especially low-income youth (income of 60 million won or less, under 39 years old) receive rates of 3.70~3.90%. Depending on the maturity, the rates are set at 3.80% for 10 years, 3.90% for 15 years, 3.95% for 20 years, and 4.00% for 30 years. For low-income youth, the rates for the same maturities are 3.70%, 3.80%, 3.85%, and 3.90%, respectively.

The current mortgage loan interest rates at commercial banks range from the high 3% to the high 5%, and since the Bank of Korea is expected to raise the base rate further, mortgage loan rates will also likely increase. Therefore, the interest rate level of this Safe Conversion Loan is considered advantageous by the banking sector.

A Financial Services Commission official said, "The fixed interest rate until maturity means that even if interest rates rise in the future, the principal and interest remain the same," and added, "the estimated number of eligible households is between 230,000 and 350,000." Applications will be accepted starting from the 15th of next month in order of housing price. The first round is for houses priced at 300 million won or less, from September 15 to 28, and the second round is for houses priced at 400 million won or less, from October 6 to 13.

Since the final beneficiaries are selected in order of lower housing prices, applicants may be excluded if the total exceeds 25 trillion won. If selected as a Safe Conversion Loan beneficiary, the loan execution will be completed within an average of two months after the application date, and the borrower must visit the branch for loan execution.

During the current period of rising interest rates, variable rates at banks continue to rise and are higher than the Safe Conversion Loan rates, so borrowers will switch to the Safe Conversion Loan. However, if a period of falling interest rates arrives in the future and bank variable rates become lower than the Safe Conversion Loan rates, there is no restriction on switching to another bank again.

Bogeumjari Loan interest rate reduced by 0.35 percentage points

The Financial Services Commission announced that the Korea Housing Finance Corporation will also reduce the interest rate on the Bogeumjari Loan starting from the 17th of this month. The Bogeumjari Loan is a long-term fixed-rate installment mortgage loan supplied by the Korea Housing Finance Corporation. It is only available to low-income people such as the homeless when purchasing small-sized houses.

The Korea Housing Finance Corporation decided to reduce the Bogeumjari Loan interest rate by 0.35 percentage points from the existing rate, applying rates of 4.25~4.55% starting from the 17th of this month and freezing them until the end of the year. The target is households with a combined income of 70 million won or less (85 million won for newlyweds, 90 million won for one child, 100 million won for three children), and they must be either homeless or one-homeowners. The housing price must be 600 million won or less, the loan limit is 360 million won, and maturities are divided into 10, 15, 20, 30, 40, and 50 years. The loan can be used for new home purchases, repayment of existing mortgage loans, or returning jeonse deposits.