[1mm Financial Talk] Special BoGeumJaRi Loan: No Interest Rate Advantage but Favorable Loan Limits

Special Housing Loan Interest Rates in the Mid-4% Range, Possibly Higher Than Bank Rates
If You Have Existing Credit Loans, Special Housing Loan with Increased Limits Is Advantageous

[Image source=Yonhap News]

[Asia Economy Reporter Sim Nayoung] As the special BoGeumJaRi loan is set to launch on the 30th, interest rates at commercial banks are on a downward trend. As of the 17th, the fixed interest rates at the five major banks (KB Kookmin, Shinhan, Hana, Woori, NH Nonghyup) range from 4.36% to 6.36% per annum. This is comparable to the special BoGeumJaRi loan, which promotes a '4% fixed interest rate.' This is why the 'limited edition' policy financial product, which integrates BoGeumJaRi loans with refinancing loans and qualified loans for one year, has been met with skepticism even before its release.

Special BoGeumJaRi Loan Rates > Commercial Bank Rates
Preferential rates are not easy to obtain

Looking closely, the special BoGeumJaRi loan interest rates are actually higher than those of commercial banks. For housing prices under 600 million KRW and combined household income under 100 million KRW, rates range from 4.65% to 4.95%. For housing prices exceeding 600 million KRW or income over 100 million KRW, rates range from 4.75% to 5.05%. Even the lower end of these rates is above the fixed rates at KB Kookmin Bank (4.36%) or NH Nonghyup (4.56%).

If all preferential rates are applied to the special BoGeumJaRi loan, the interest rate can be lowered to as low as 3.75%. However, since the conditions are strict?targeting low-income youth, newlyweds, single-parent families, and households with disabilities?it is predicted that obtaining rates in the 3% range will not be easy.

Currently, the financial sector expects the government to likely adjust the special BoGeumJaRi loan rates while monitoring market conditions. A representative from the Korea Housing Finance Corporation stated, "The February rates will proceed as previously announced with no plans for changes," but added, "Considering market interest rates and the available resources of the Housing Finance Corporation, adjustments will be made if necessary."

As the U.S. central bank, the Federal Reserve (Fed), hinted at additional interest rate hikes, attention is increasing on whether the Bank of Korea's Monetary Policy Committee will raise rates at its meeting scheduled for the 25th. The photo shows a loan counter at a commercial bank in downtown Seoul on the 19th. Photo by Hyunmin Kim kimhyun81@

If You Have Existing Personal Loans, Choosing the Special BoGeumJaRi Loan Is Advantageous

In terms of loan limits, the special BoGeumJaRi loan is much more advantageous, according to banking officials. When borrowing from commercial banks, there is a restriction called the Debt Repayment Service ratio (DRS) capped at 40%, but this regulation does not apply to the special BoGeumJaRi loan. Instead, a Debt-to-Income ratio (DTI) of 60% is applied. The DRS calculates loan limits by including principal repayments of not only mortgage loans but also personal loans, whereas the DTI does not include principal repayments of personal or other loans when calculating limits.

This means that for those who already have personal loans, choosing the special BoGeumJaRi loan results in a higher loan limit. For example, assuming a salaried worker earning 70 million KRW annually who has a personal loan of 50 million KRW (interest rate 6%) and is purchasing a 900 million KRW apartment (interest rate 4%, 30-year term), the special BoGeumJaRi loan allows borrowing up to 500 million KRW, while commercial banks would permit only up to 260 million KRW.

A commercial bank official advised, "Another advantage of the special BoGeumJaRi loan is that there is no prepayment penalty, so when interest rates on variable-rate mortgages at commercial banks fall, you can refinance again. It is advisable to carefully compare loan limits and interest rates before choosing a product."