Monthly Principal and Interest Burden ↓ · Loan Limit ↑
Total Interest Increases, Caution Needed
Banks are consecutively extending the maturity periods of mortgage loans. While extending the maturity reduces the monthly principal and interest payments for borrowers, the total interest amount increases, so caution is necessary.
According to the financial sector on the 16th, KB Kookmin Bank decided to extend the maximum maturity of its ‘KB Mortgage Loan’ from the existing 40 years to 50 years starting from the 14th. Borrowers can choose between a hybrid type with a fixed interest rate for the first 5 years and a variable type using the new COFIX (Cost of Funds Index) 12-month base rate. NH Nonghyup Bank also launched a 50-year maturity mortgage loan product called ‘Chaeum Fixed Rate Mortgage Loan (50-year hybrid type)’ on the 5th, extending the maximum maturity by 10 years from the previous 40 years. The first 5 years apply a fixed interest rate, and the remaining period applies a variable interest rate based on the monthly new COFIX 6-month base rate. Hana Bank has also been selling a 50-year maturity mortgage loan product since the 7th.
Among regional banks, DGB Daegu Bank extended the maximum mortgage loan maturity from 40 years to 50 years on the 30th of last month.
When the loan maturity is extended, the borrower’s monthly principal and interest repayment amount decreases because the same amount can be repaid over a longer period. For example, a borrower who took out a 300 million KRW loan at an annual interest rate of 4.5% must repay 1,348,689 KRW monthly (based on equal principal and interest repayment) for a 40-year maturity, whereas for a 50-year maturity, the monthly repayment is 1,258,169 KRW.
There is also an effect of easing the DSR (Debt Service Ratio) regulation. Currently, the ‘DSR 40% regulation’ applies, meaning that for people with total bank loans exceeding 100 million KRW, the annual principal and interest repayment amount cannot exceed 40% of their annual income. However, since extending the maturity reduces the monthly principal and interest repayment amount, the DSR decreases, allowing borrowers to take out more loans accordingly.
However, since the repayment period is longer, the total interest amount increases. For example, borrowing 300 million KRW at an annual interest rate of 4.5% with an equal principal and interest repayment method, extending the maturity from 40 years to 50 years increases the total interest amount from approximately 347.37 million KRW to about 454.9 million KRW, an increase of over 100 million KRW.
From the banks’ perspective, extending the maturity can attract demand for mortgage loans. As the real estate market shows signs of recovery recently, the scale of mortgage loans is increasing. According to the Bank of Korea, the outstanding balance of bank mortgage loans increased by 7 trillion KRW compared to the previous month, marking the largest increase since February 2020 (7.8 trillion KRW).
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