Lukewarm '40-Year Mortgage'... When Will Banks Offer It?

July '40-Year Maturity Bogeumjari Loan' Applications Reach 2,600
Bank Sector 40-Year Mortgage Discussions Practically at Standstill
Private Sector Finds It Difficult to Maintain Fixed Interest Rates for Long Periods

[Asia Economy Reporter Song Seung-seop] The '40-year maturity' ultra-long-term mortgage for young adults and newlyweds is not gaining consumer traction in its early stages. Plans to expand sales channels through commercialization by commercial banks also seem distant. There are calls to ease the burden on homebuyers who have to repay debt over a long period.

According to the Korea Housing Finance Corporation on the 13th, the number of applications for the 40-year maturity ultra-long-term Bogeumjari Loan last month was 2,600, accounting for 16.7% of all Bogeumjari Loan applications. Among borrowers aged 39 or younger who are eligible for the product, only 24.1% applied for the 40-year maturity Bogeumjari Loan.

The 40-year maturity mortgage is one of the follow-up measures to the 'Household Debt Management Plan' announced in April and the 'Financial Support Plan for Low-income and Real Demand Households' at the end of May. Eligible applicants are young adults aged 39 or younger and newlyweds within seven years of marriage, with house prices up to 600 million KRW and income levels up to 70 million KRW (85 million KRW for newlyweds). The key feature is that the maturity period is extended by 10 years compared to existing loans, reducing the monthly principal and interest repayment burden.

Although it is a financial support product designed for real demand borrowers who lack sufficient assets to purchase a home or have a high potential for future income growth, the number of applications has been lower than expected. A Korea Housing Finance Corporation official explained, "It has only been a month since the product was launched, so it is too early to discuss performance."

Private Sector Faces Difficulty with Ultra-long Fixed Rates... Raising Rates May Lead to Consumer Rejection

Financial authorities have been considering expanding sales of the 40-year mortgage product to the private sector from the initial stages, but progress remains stalled. While sales would increase if commercial banks handled the product, it conflicts with government policies aimed at curbing loan growth. A financial authority official said, "We are not currently discussing the launch of the 40-year mortgage with banks," adding, "There is no concrete launch plan yet."

The interest rate level and structure are also critical. The 40-year maturity mortgage is a fixed-rate product. It is difficult for the private sector to maintain low rates over such a long period like policy financial products. If they set a high fixed rate to mitigate interest rate fluctuation risks or switch to variable rates, consumers are likely to avoid the product.

There is also speculation that the burden of repaying debt even after retirement has affected consumer interest. Typically, people purchase their first home in their 30s or 40s, but with repayment periods extending into their 70s or 80s, borrowers may find this burdensome.

The Korea Institute of Finance has suggested the need to consider additional product structures. One option is a type of 'balloon mortgage' where small repayments are made for a certain period, and the home mortgage loan is fully repaid at retirement.

Senior Researcher Kim Young-do of the Korea Institute of Finance analyzed, "Referring to cases in Japan and Malta, for mortgage consumers in their 20s and 30s, it is possible to enforce full repayment of the remaining amount after 30 years when assets have accumulated and retirement approaches," adding, "This would prevent homebuyers from bearing repayment burdens after retirement in advance, enabling lifecycle financial management."

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