Let's Reconsider 1%P... Precautions for Refinancing Jeonse Loans [Practical Financial Tech]

Following unsecured loans and mortgage loans, the launch of the 'Jeonse Loan Refinancing Service' through online and one-stop refinancing infrastructure is drawing the attention of borrowers struggling with high interest rates. This is because banks are competing to offer refinancing products with interest rates nearly 1 percentage point (P) lower than existing loans.

However, since the refinancing conditions for Jeonse loans are relatively stringent compared to existing mortgage loans, individual borrowers need to carefully check whether they meet the requirements. It is also necessary to consider the pros and cons compared to early repayment fees.

◆ Refinancing interest rates lowered to mid-to-high 3% range = According to the financial sector on the 7th, the interest rates of major commercial banks and internet-only banks participating in this Jeonse loan refinancing converge at the lowest annual rate of the low to mid-3% range. The five major commercial banks (KB Kookmin, Shinhan, Hana, Woori, NH Nonghyup) offer interest rates ranging from 3.65% to 3.90% per annum.

This is nearly 1%P lower than the average interest rates executed by the five major commercial banks at the end of last year. The interest rates for Jeonse loans guaranteed by a policy financial institution provided by these banks in November last year ranged from 4.53% to 4.71%.

Compared to commercial banks, internet-only banks (Kakao Bank, K Bank), which offer lower interest rates by reducing various costs, provide even lower refinancing interest rates for Jeonse loans. Kakao Bank applies a minimum annual interest rate of 3.33%, and K Bank applies a minimum of 3.31%.

A simulation was requested for a borrower who took out a Jeonse loan of 250 million KRW at a fixed interest rate of 4.77% per annum in March last year and applied for refinancing yesterday. The applied loan interest rate dropped by 0.87%P to 3.90% per annum (variable), and the monthly payment decreased from 993,750 KRW to 812,500 KRW, a reduction of 181,250 KRW.

Although an early repayment fee of 956,507 KRW is incurred, the interest savings over the remaining 12 months amount to 2,175,000 KRW, resulting in a net interest saving of 1,218,493 KRW. This translates to a monthly saving of approximately 101,500 KRW.

Accordingly, interest in Jeonse loan refinancing is relatively high. From the 31st of last month to the 1st of this month, the number of Jeonse loan refinancing applications at the five major commercial banks reached 810 cases, with an application amount of 164 billion KRW. A representative from a commercial bank stated, "Considering the characteristic that Jeonse loans have smaller loan amounts compared to mortgage loans, initial demand for Jeonse loan refinancing seems to be gathering."

◆ Stringent conditions, need to weigh actual benefits = However, unlike mortgage loan refinancing, which covers all apartment mortgage loans with market prices such as KB, Jeonse loan refinancing has relatively stringent conditions, requiring careful attention. First, Jeonse loan refinancing applies only to Jeonse loans guaranteed by three guarantee institutions: Korea Housing Finance Corporation (HF), Korea Housing & Urban Guarantee Corporation (HUG), and SGI Seoul Guarantee.

It is also important to note that refinancing is limited to specific periods after the original loan execution: 3 to 12 months, or 22 to 24 months. Simple refinancing is possible only from 3 months after the original loan execution until half of the Jeonse lease contract period has passed. Considering that the typical Jeonse contract period is 2 years, refinancing is possible only after 3 to 12 months from the original loan execution. This reflects the characteristics of each guarantee institution's guarantee products. The financial authorities plan to negotiate with guarantee institutions in the second half of this year to expand the refinancing period.

When renewing a Jeonse contract, the loan application must be completed between 2 months and 15 days before the expiration of the existing Jeonse contract period. This is because contract renewals typically occur 2 months before the Jeonse contract expires, and about 15 days are needed to complete loan screening stably before the contract expiration date.

Therefore, it is necessary to assess whether refinancing is actually beneficial. This is due to the existence of early repayment fees. Early repayment fees, typically around 0.6% to 0.7%, are charged proportionally to the remaining loan period. Depending on the situation, the difference between early repayment fees and interest savings may not be significant.

Also, Jeonse loan refinancing is only possible within the same guarantee institution's products. For example, HUG-guaranteed products can only be refinanced into HUG-guaranteed products, and HF-guaranteed products only into HF-guaranteed products. The loan limit is also restricted to the outstanding balance of the existing loan. However, if the Jeonse contract is renewed and the deposit increases, the new Jeonse loan limit can be increased by the amount of the increase within the guarantee limit of each guarantee institution.

It should be noted that low-interest policy financial products are excluded from refinancing. Representative examples include HUG's Beotimok Jeonse Loan and local government-linked Jeonse loan products such as "○○ City Youth Housing Stability Agreement." These products already apply low interest rates as they are policy products offered by the government or local governments.

Meanwhile, banks are actively marketing to attract customers in the early stages of refinancing. KB Kookmin Bank offers up to 300,000 KRW in cash to customers who check their Jeonse loan limit and interest rate by the end of this month and complete refinancing by April 3. Shinhan Bank provides 100,000 Shinhan Points to the first 500 customers who complete refinancing by the 29th of next month.