Increase Guarantee Ratio to 100% - Lower Guarantee Fee Rate by 0.1%p
The Korea Housing Finance Corporation (HF) announced on the 28th that it will launch the 'Fixed-Rate Agreement Jeonse Loan Guarantee' on the 29th, which raises the guarantee ratio to 100% and lowers the guarantee fee rate by 0.1 percentage points. This is in line with the government's 2023 economic policy direction.
The Agreement Jeonse Loan Guarantee refers to a jeonse loan guarantee that applies preferential guarantee terms and separate guarantee requirements through individual agreements with the national government, local governments, public institutions, or financial institutions. The guarantee fee rate for general jeonse loan guarantee products is 90% of the loan amount.
The guarantee target is non-homeowners applying for loan funds at banks handling the Fixed-Rate Agreement Jeonse Loan Guarantee. In the case of a married couple, both the applicant and the spouse must be non-homeowners. The guarantee limit is up to 400 million KRW, and the handling banks are four institutions: Gyeongnam Bank, Industrial Bank of Korea, K Bank, and Hana Bank.
HF fixed the additional interest rate at 0.5 to 1.0 percentage points through individual agreements with the handling banks, and by applying a 100% guarantee ratio, it eliminated interest rate differences based on customer credit ratings, enabling the supply of low fixed-rate jeonse loans. Additionally, even if the loan is repaid early with surplus funds, early repayment fees are waived.
For example, if Mr. A, concerned about rising interest rates, borrows 200 million KRW from Bank B for a jeonse contract, the fixed-rate agreement jeonse loan product applies an annual interest rate of 4.20% (based on Bank B’s base rate as of the 24th plus an additional 0.5 percentage points), resulting in a total interest burden of 16.8 million KRW over two years.
On the other hand, if using a variable-rate jeonse loan product, starting at 4.60% (the average interest rate for HF general jeonse loan guarantees secured by bank funds in February), with the interest rate increasing by 0.3 percentage points every six months, the total interest amounts to 20.2 million KRW, which is 3.4 million KRW more than the agreement jeonse loan (16.9 million KRW).
Choi Jun-woo, President of HF, stated, “This product will not only help tenants prepare for the risk of rising loan interest rates but is also expected to contribute to expanding the proportion of fixed-rate loans in the jeonse loan market.” He added, “The corporation will continue to make efforts to reduce tenants’ housing costs.”
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