My Home: Apartments Under 900 Million Won in Seoul... How to Use the Newborn Special Exception [Practical Finance]

Newborn Special Loan Usage Becomes Increasingly Clear
Overwhelmingly for Refinancing, Also Worth Considering for New Purchases

Apartment viewed from Yongsan-gu, Seoul. Photo by Jinhyung Kang aymsdream@

The newborn special loan, launched on January 29 this year, has emerged as a new variable in the normalization of the real estate market. There has been a noticeable increase in people refinancing at lower interest rates by leveraging the newborn special loan. Last month, the proportion of apartment transactions under 900 million KRW in Seoul also slightly increased. As the high-interest-rate era has lasted longer than expected, the newborn special loan has recently become a financial strategy for young couples who have had children within the past 1-2 years.

According to the Ministry of Land, Infrastructure and Transport on the 12th, the total budget allocated for the newborn special loan this year is 32 trillion KRW. Of this, as of the 16th of last month, about 10% of the total budget, 3.3928 trillion KRW (a total of 13,458 applications), was used up within just three weeks of the loan’s launch. The newborn special loan is broadly divided into ‘Didimdol Loan’ (for home purchase) and ‘Buteemok Loan’ (for jeonse deposit). Each loan is used either for refinancing existing loans at lower interest rates or for new purchases of apartments or jeonse homes.

Can Lower Interest Rates by 2%P

Most of the newborn special loans were used for refinancing. Among the Didimdol Loans, 2.1339 trillion KRW, and among the Buteemok Loans, 334.6 billion KRW were used for this purpose. This accounts for 73% (2.4685 trillion KRW) of the total amount used. The proportion of households securing funds for ‘new home purchases’ was relatively small. In Didimdol Loans, 674.9 billion KRW, and in Buteemok Loans, 249.4 billion KRW were used for new home purchases, about 27% of the total amount used.

Since the interest rates are lower than those of commercial banks’ mortgage loans, it is analyzed that young couples are quickly refinancing their loans. The Ministry of Land, Infrastructure and Transport stated, "Analyzing loan execution performance, Didimdol Loans had interest rates on average 1.88 percentage points lower than commercial banks’ mortgage loans." The average interest rate for Didimdol Loans was around 2.41%. In contrast, the average mortgage loan interest rate at housing fund loan banks (Kookmin, Shinhan, Hana, Woori, NH Nonghyup) surveyed by the Korea Federation of Banks was 4.29% (as of the end of January).

The refinancing effect of Buteemok Loans was even greater. Compared to commercial jeonse loans, the interest rate was on average 2.03 percentage points lower. The average interest rate for Buteemok Loans was 2.32%, while the average jeonse loan interest rate at housing fund loan banks was much higher at 4.35%. A Ministry of Land, Infrastructure and Transport official explained, "Both Didimdol and Buteemok Loans significantly reduced interest costs, alleviating the burden of housing expenses."

Keep an Eye on Apartments Under 900 Million KRW in Seoul

On the 14th, in a real estate-dense shopping area in Songpa-gu, Seoul, where the decline in real estate prices and the transaction freeze phenomenon continue, apartment listings with market prices are posted. Photo by Jinhyung Kang aymsdream@

Experts advise that households planning to have children who have not yet received the newborn special loan should consider using this loan to purchase apartments priced under 900 million KRW as a smart way to secure a home. The newborn special loan is a system that provides low-interest loans for home purchases and jeonse deposits to non-homeowners or one-home households (for refinancing loans) who have given birth or adopted within two years from the loan application date. The combined asset size of the couple must be under 506 million KRW, and the annual income must be under 130 million KRW. The target homes are those priced under 900 million KRW (exclusive area under 85㎡).

Kim Hyoseon, Senior Real Estate Specialist at NH Nonghyup Bank, explained, "In the past, it was difficult to purchase apartments under 900 million KRW in Seoul, but as prices have fallen, there are now many options under 900 million KRW mainly in Nowon-gu, Dobong-gu, and Gangbuk-gu." He added, "For example, Nowon Sanggye Jugong Complex 5 (37.38㎡) rose to 800 million KRW in 2022 but has now dropped to around 460 million KRW."

He continued, "At the end of last month, banks applied the ‘stress Debt Service Ratio (DSR)’ to reduce mortgage loan limits," adding, "As a result, it is currently difficult for ordinary citizens to get loans to buy ultra-high-priced apartments worth tens of billions of KRW or even high-priced apartments over 1 billion KRW." Kim said, "Given this situation, the price range where ordinary citizens can buy homes with bank loans is around 900 million KRW," and added, "For this reason, the proportion of apartment transactions under 900 million KRW is expected to increase this year." This is a point young couples who can use the newborn special loan should pay attention to.

In fact, the proportion of apartment transactions under 900 million KRW is increasing. According to data from the Seoul Real Estate Information Plaza and the Ministry of Land, Infrastructure and Transport’s actual transaction prices, as of the 7th of this month, there were a total of 1,653 apartment transactions in Seoul in February. Of these, 954 transactions were for apartments under 900 million KRW, accounting for 57.7% of the total. In January, 55.1% of the total 2,509 transactions were for apartments under 900 million KRW. The proportion of transactions under 900 million KRW increased by 2.6 percentage points.

Need to Address Loopholes in Refinancing Loan System

However, there are cases where refinancing loans through the newborn special loan cannot be obtained if the borrower has already refinanced once, indicating a need for system improvement. The reason for the loan on the financial transaction confirmation form must be ‘for purchase,’ but borrowers who have refinanced more than once in the past have it marked as ‘for repayment,’ causing loan approval to be denied.

An official from the Korea Housing & Urban Guarantee Corporation explained, "We are aware of these issues and have instructed commercial banks to allow refinancing loans even if the financial transaction confirmation form states ‘for repayment,’ provided there is evidence that it can be considered ‘for purchase.’" He added, "For example, if the loan execution date and the ownership transfer registration date are close, it can be judged as ‘for purchase.’ In such cases, even if there is a history of refinancing loans, measures have been taken to allow refinancing again through the newborn special loan."