Bogeumjari Loan Interest Rate Hits Highest in 3 Years...Concerns Over Interest Burden on Low-Income Earners (Comprehensive)

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 the common 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 low-income and genuine 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. This year, the market interest rate increase accelerated, resulting in a sharp rise of 1 percentage point within just one year. In particular, the rates have increased consecutively for three 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 rising steeply. 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 surged to the mid-3% range.

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

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 basis. The 5-year Treasury bond rate, which acts as the cost basis for the Bogeumjari Loan, has risen by 0.844 percentage points this year alone. The rise in benchmark interest rates is also cited as the cause for the increases in Qualified Loans and Didimdol Loans.

In particular, there is an analysis that the interest rate hike was decided preemptively due to concerns about a so-called "concentration phenomenon," where the interest rate gap between commercial banks and policy financial institutions widens. In fact, there is a trend of low-income and genuine borrowers who cannot meet the high loan thresholds of banks flocking to products like the Bogeumjari Loan.

The problem lies in the interest burden on low-income people due to the 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 paid 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 the loan was taken out under the equal principal and interest repayment method, the monthly payment difference would be about 160,000 KRW.

Loan interest rates for policy mortgages are expected to rise even more sharply in the future. 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 are bound to 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.

Policy mortgages, which have already approached the mid-3% range, are expected to surpass 4% within the year due to the impact of base rate hikes. A financial industry official said, "Given the rapid rise in market interest rates, the increase in policy mortgage rates was inevitable," adding, "However, considering the nature of policy finance, complementary measures such as introducing preferential interest rate items to reduce the interest burden on low-income and genuine borrowers are also necessary."

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