[Real Estate AtoZ] Second Debt Refinancing Also "With Newborn Special Loan"

Neonatal Theory: Secondary Refinancing Difficult After Primary Refinancing
"Second Refinancing Possible if Registration Within 3 Months After First Loan"
"Confusion Expected for Now... Continuous Guidance to Banks"

#Jeong Yoon-jae, an expectant father due to give birth in July, was recently informed by his bank that refinancing through the Newborn Special Loan would be difficult. The issue arose because he had already refinanced once last August through the Special Bogeumjari Loan. To qualify for the Newborn Special Loan, the loan purpose must be explicitly stated as 'purchase purpose' on the financial transaction confirmation. However, his confirmation stated the purpose as 'repayment purpose.'

The Housing and Urban Guarantee Corporation (HUG) began allowing a second refinancing through the Newborn Special Loan from mid-last month for people like Mr. Jeong. If the loan purpose is effectively for purchase, they have opened a path to refinance based on that.

HUG permits refinancing through the special loan if the ownership transfer registration is completed within three months after the first loan. A HUG official said, "If the ownership transfer registration is completed within three months from the initial loan date, we consider the loan purpose to be for home purchase, and regardless of previous refinancing, allow refinancing again through the Newborn Special Loan."

Loan Possible if Ownership Transfer Registration Completed Within 3 Months from Initial Loan Date

At the beginning of the Newborn Special Loan program, there were concerns that a second refinancing would be difficult. In cases like Mr. Jeong’s, who had already refinanced once, the financial transaction confirmation stated the loan purpose as 'repayment purpose' rather than 'purchase purpose.' To receive the Newborn Special Loan, the loan purpose must be explicitly stated as 'purchase purpose.'

HUG has also opened the possibility to interpret the loan purpose as 'purchase purpose' if the ownership transfer registration is completed within three months, even if the financial transaction confirmation states 'repayment purpose.' A HUG official explained, "Recognizing the difficulty in loan approval, if the initial loan is executed and ownership transfer registration is completed within three months, we consider the loan purpose as 'purchase purpose' on the financial transaction confirmation," adding, "We have been communicating this standard to all banks since mid-this month."

For example, if a couple who had a child took out a mortgage loan in December 2022 and the ownership transfer registration date for the purchased house was December 31, 2022, they can use the Newborn Special Loan for refinancing purposes. Even if the couple refinanced last year through the Special Bogeumjari Loan, they can still use the Newborn Special Loan because the registration was completed within three months, making them eligible for the loan.

Issues Remain Due to Different Loan Handling Standards Among Banks

However, commercial banks are still causing confusion regarding the refinancing requirements for the Newborn Special Loan.

A representative from a commercial bank said, "You can only receive a second refinancing through the Newborn Special Loan if it is within three months from the ownership transfer date." According to this, if the loan was taken out in December last year and ownership transfer registration was completed, refinancing through the Newborn Special Loan would not be possible. The bank official explained that if the ownership transfer registration occurred in December, the Newborn Special Loan application should have been made by February.

A HUG official commented on this confusion, saying, "Since the Newborn Special Loan was introduced recently, it seems that banks have applied different handling standards. Especially, even within the same bank, different branches appear to apply different standards." He added, "HUG established the standard this month that if ownership transfer registration is completed within three months from the initial loan date, a second refinancing through the Newborn Special Loan is allowed, and we have sent official notices to banks."

HUG plans to continue communicating these changes to banks to resolve the confusion. A HUG official said, "Since allowing a second refinancing through the Newborn Special Loan is a recent development, some confusion is expected for the time being. We are continuously guiding banks to prevent misunderstandings."