Bogumjari Loan Interest Rate Nears 3% Annually... Increased Burden on Low-Income Real Demand Borrowers

U-Bogeumjari Loan, Maximum 2.95% from June Applications
Impact of Rising 5-Year Government Bond Yields as Cost Basis
Increased Interest Burden Expected for Main Users Like Youth and Newlyweds

[Asia Economy Reporter Kim Jin-ho] The interest rate on the policy financial product, Bogeumjari Loan, known as the "ladder to homeownership" for ordinary citizens, is approaching the 3% mark. This is due to the recent rise in market interest rates, significantly influenced by the increase in the 5-year government bond yield, which serves as the cost basis. With credit loan rates also rising sharply, concerns are growing over the increased financial burden on households.

According to the Korea Housing Finance Corporation on the 27th, the U-Bogeumjari Loan with a 30-year maturity, the most commonly used product, will have an interest rate of 2.95% applied to applications from next month. This is a 0.1 percentage point increase compared to the previous month.

This is the first time in over two years that the Bogeumjari Loan interest rate is on the verge of surpassing 3%. The rate had been declining monthly from 2.95% in May 2019 to 2.35% in September of the same year and had since remained between 2.35% and 2.6%. However, with the recent acceleration in market interest rates, it surged by 0.35 percentage points in just over two months to reach 2.95%.

The rapid rise in the Bogeumjari Loan interest rate is largely influenced by the U.S. bond market. Inflation expectations combined with the Biden administration's stimulus measures caused U.S. Treasury yields to spike, which in turn led to a rise in domestic government bond yields. Consequently, the 5-year government bond yield, which serves as the cost basis for the Bogeumjari Loan, also increased significantly. The 5-year government bond yield rose from 1.211% in March last year to 1.651% as of the 24th.

An official from the corporation explained, "The Bogeumjari Loan interest rate was adjusted due to the rise in mid- to long-term government bond yields, which serve as the benchmark for policy mortgages."

The Bogeumjari Loan interest rate is expected to rise further. This is because there is talk of a possible base rate hike within the year in both the U.S. and South Korea. With market interest rates already on a clear upward trend, an increase in the base rate would likely push the Bogeumjari Loan interest rate to the mid-to-high 3% range in the second half of the year.

The problem lies in the interest burden on ordinary citizens due to the rate hike. The Bogeumjari Loan is a representative policy mortgage product most sought after by low-income real demand groups. Unlike commercial bank mortgage loans, it has a high loan-to-value (LTV) ratio limit of 70% (up to 300 million KRW), making it popular among newlyweds and young people.

For example, a borrower who took out a 300 million KRW Bogeumjari Loan in November last year had an interest payment of about 118 million KRW and a principal and interest burden of 1.16 million KRW. However, for those applying after June 1, the interest payment is about 152 million KRW, with a principal and interest burden of 1.26 million KRW. This clearly shows a sharp increase in interest burden within half a year. A financial sector official said, "There is a high possibility that interest rates will rise further in the second half of this year," adding, "Within just one year, the interest burden could increase by as much as 100 million KRW."

In particular, the rise in Bogeumjari Loan interest rates has made it more difficult for young people who planned to purchase homes by combining credit loans, so-called 'Yeongkkeul' (borrowing to the limit), to realize their dreams. As of the 7th, the credit loan interest rates at the four major commercial banks?KB Kookmin, Shinhan, Hana, and Woori?have already risen by 0.6 percentage points from the historic low of 1.99% at the end of July last year to 2.57%.

An official from the banking sector said, "As interest rates on all loan products, including policy mortgages, are rising rapidly, the burden on the 2030 young generation's homeownership plans will increase," and added, "Considering the possibility of entering a full-fledged interest rate hike phase, caution is necessary."

This content was produced with the assistance of AI translation services.