'Last Bastion for the Common People' Policy Mortgage Loan Interest Rates Also Soar... Highest in 3 Years

U-Bogeumjari Loan 3.35%... 1%P Increase in One Year
Qualified and Didimdol Loan Interest Rates Also Rise Consecutively

[Asia Economy Reporter Kim Jin-ho] The loan interest rates for policy mortgage products, known as the "last bastion of loans for ordinary people," have reached their highest level in over three years. This is due to the rapid rise in market interest rates following the base rate hikes and loan regulations. Concerns are emerging that the interest burden on ordinary people and real demand borrowers flocking to policy mortgages amid tightening bank loans will increase.

According to the Korea Housing Finance Corporation on the 15th, the loan interest rate for the November U-Bogeumjari Loan (based on a 30-year term) stands at 3.35% per annum, marking the highest level since September 2018 (3.45% per annum). The U-Bogeumjari Loan is one of the most commonly used products among the Korea Housing Finance Corporation's offerings.

The Bogeumjari Loan interest rate has been on a steady rise since hitting a low of 2.35% per annum in October last year. With the acceleration of market interest rate increases this year, it has surged by 1 percentage point in just one year. Notably, it has risen for three consecutive months: 3.05% in September, 3.25% in October, and 3.35% in November.

The interest rate for the Qualified Loan, a popular policy mortgage product without income restrictions, is also climbing sharply. At the beginning of this year, the average interest rate for most commercial banks' Qualified Loans was in the high 2% range, but as of this month, it has soared to the mid-3% range.

The Didimdol Loan interest rate has also recently increased. The Didimdol Loan, which has the lowest income criteria (under 60 million KRW annually) among policy mortgages and is mainly used by newlyweds and low-income households, saw the Housing and Urban Fund raise its interest rate by up to 0.35 percentage points recently.

The rapid rise in loan interest rates for major policy mortgage products is largely due to the increase in benchmark interest rates, which serve as the cost base. The 5-year Treasury bond rate, which acts as the cost base for the Bogeumjari Loan, has risen by 0.844 percentage points this year alone.

In particular, there is analysis that the interest rate hike was decided preemptively due to concerns about the so-called "concentration phenomenon," where the interest rate gap between commercial banks and policy financial institutions widens. In fact, there has been a trend of ordinary people and real demand borrowers who could not overcome the high loan barriers at banks flocking to products like the Bogeumjari Loan.

The problem lies in the interest burden on ordinary people due to the interest rate hikes. The main customer base for the Bogeumjari Loan, Qualified Loan, and Didimdol Loan includes newlyweds and young people.

For example, a borrower who took out a 300 million KRW Bogeumjari Loan in October last year would pay a total interest of about 120 million KRW, but a borrower taking out the same loan this month would pay about 177 million KRW, bearing an additional burden of approximately 57 million KRW. If repaid using the equal principal and interest method, the monthly payment difference is about 160,000 KRW.

Loan interest rates for policy mortgages are expected to rise even more steeply going forward. The Bank of Korea is expected to raise the base rate consecutively at the end of this month and early next year, and if the U.S. also raises its base rate amid inflation concerns, loan interest rates will inevitably fluctuate further. According to the Bank of Korea, a 1 percentage point increase in loan interest rates would increase the total household interest burden by about 12 trillion KRW.

A financial industry official said, "Given the rapid rise in market interest rates, the increase in policy mortgage rates was probably inevitable," adding, "However, considering the nature of policy finance, complementary measures such as establishing preferential interest rate items to reduce the interest burden on ordinary people and real demand borrowers are also necessary."

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