Approaching 3%... Bogeumjari Loan Interest Rate Hits Highest in Over 2 Years (Comprehensive)

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

[Asia Economy Reporter Jin-ho Kim] 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, which has significantly increased the 5-year government bond yield that serves as the cost basis. With credit loan rates also rising sharply, concerns are growing over the increased 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.

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

The rapid rise in the Bogeumjari Loan rate is influenced by the U.S. bond market. Inflation expectations combined with the Biden administration's stimulus measures have 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, has also increased significantly. The 5-year government bond yield was 1.211% in March last year and rose to 1.651% as of the 24th of this month.

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

The Bogeumjari Loan interest rate is expected to rise further. This is because the possibility of a base interest rate hike within the year is being discussed not only in the U.S. but also in South Korea. With market interest rates already showing a clear upward trend, if the base rate is also increased, the Bogeumjari Loan rate is expected to soar to the mid-to-high 3% range in the second half of this year.

Interest Burden on Actual Homebuyers Likely to Increase Sharply

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 frequently used by actual homebuyers from the lower-income bracket. 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 for the Bogeumjari Loan after June 1, the interest payment is about 152 million KRW, and the principal and interest burden is 1.26 million KRW. This clearly shows that the interest burden has increased sharply in just half a year. A financial industry 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 rates has made it more difficult for young people who planned to purchase homes by combining credit loans?so-called "Youngkkeul" (borrowing to the limit)?to realize their dreams. As of the 7th, the credit loan 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%.

Mortgage loan rates have also jumped significantly. As of the 7th, the variable mortgage loan rates linked to the Cost of Funds Index (COFIX) at the four major commercial banks range from 2.55% to 3.90%, with the lowest rate up by 0.3 percentage points compared to the end of July last year (2.25% to 3.96%).

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," adding, "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.