'40-Year Maturity' Bogeumjari Loan After One Month... Will It Be Offered as a Private Bank Product? (Comprehensive)

July '40-Year Maturity Bogeumjari Loan' Applications Reach 2,600
24% of Borrowers Aged 39 or Younger Choose 40-Year Maturity
Bank Sector's 40-Year Mortgage Discussions Practically at Standstill
Private Sector Finds It Difficult to Maintain Fixed Rates for Long Periods

[Asia Economy Reporter Song Seung-seop] The private sale of the ‘40-year maturity’ ultra-long-term mortgage targeting young adults and newlyweds remains distant. This is due to concerns that maintaining low interest rates fixed over a long period may contradict the government’s policy to curb the increase in loans. Some voices suggest the need to alleviate the burden on actual homebuyers who have to take on debt for an extended 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. Although it is a financial support product designed for actual demanders who lack sufficient assets for home purchase or have a high potential for future income growth, the number of applications was not as high as expected.

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 Actual Demanders’ 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 is extended by 10 years compared to existing products, reducing the monthly principal and interest repayment burden.

A representative from the Korea Housing Finance Corporation said, “It has only been a month since the product was launched, so it is too early to talk about performance,” but added, “We believe it is settling smoothly in the market as 24.1% of borrowers aged 39 or younger have applied for the ultra-long-term Bogeumjari Loan,” and “We think it contributes to expanding customers’ maturity options and easing the principal and interest repayment burden.”

Financial authorities have been considering expanding the sale of the 40-year mortgage product in the private sector since the initial review stage, but progress has stalled. If commercial banks handle the product, sales would increase, but this conflicts with the government’s policy to curb loan growth. A financial authority official said, “We are not currently discussing the launch of the 40-year mortgage with banks,” and “There is no concrete launch plan yet.”

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

The interest rate level and method are also critical. The 40-year maturity mortgage is a fixed-rate product. It is difficult for the private sector to maintain low rates for such a long period like policy financial products. The longest mortgage product offered by domestic commercial banks is 35 years. If banks set a high fixed rate for 40 years or switch to a variable rate to mitigate interest rate risk, consumers are likely to reject the product.

There is also a view that the burden of having to repay debt even after retirement has affected demand. Typically, people purchase their first home in their 30s or 40s, but with repayment periods extending into their 70s or 80s, borrowers may feel burdened.

The Korea Institute of Finance has proposed the need to consider additional product structures. One example is a type of ‘balloon mortgage’ where small repayments are made for a certain period, and the mortgage is fully repaid at retirement.

Kim Young-do, Senior Researcher at the Korea Institute of Finance, said, “Referring to cases in Japan and Malta, for mortgage consumers in their 20s and 30s, it could be mandatory to repay the remaining amount in full after 30 years when assets have accumulated and retirement approaches,” adding, “This would prevent consumers from bearing repayment burdens after retirement in advance, enabling lifecycle financial management.”

There was also a suggestion to clearly communicate information that could influence consumers’ choices when handling 40-year maturity products. Researcher Kim said, “While monthly payment burdens may decrease, the longer repayment period increases the total interest paid,” and added, “Providing this information clearly is necessary to resolve information asymmetry and prevent potential consumer disputes.”

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