[Seungseop Song's Financial Light] Yoon Seok-yeol's New Loan Policy... How About Interest Rates and Limits?

First-time homebuyers' LTV increased to 80%
Loan limit raised from 400 million KRW to 600 million KRW
Youth DSR calculation expanded to include future income

Finance is difficult. It is filled with confusing terms and complex backstories intertwined. Sometimes, you need to learn dozens of concepts just to understand a single word. Yet, finance is important. To understand the philosophy of fund management and consistently follow the flow of money, basic financial knowledge must be grounded. Accordingly, Asia Economy selects one financial issue each week and explains it in very simple terms. Even those who know nothing about finance can immediately understand these ‘light’ stories that will ignite a bright ‘fire’ of financial insight.

[Asia Economy Reporter Song Seungseop] The Yoon Seok-yeol administration has announced a new loan policy. Loan limits and interest rates vary depending on which financial product you receive and when. We break down the somewhat complex loan policy in an easy-to-understand way.

1. First-time homebuyers get LTV 80% regardless of regional housing prices

Comparison of LTV 80% Policy for First-Time Homebuyers Before and After Improvement

First-time homebuyers are subject to relaxed LTV regulations. LTV, or Loan-to-Value ratio, indicates how much you can borrow when you use a house as collateral. For example, if you buy a house worth 100 million KRW and the LTV is 50%, you can only borrow up to 50 million KRW. Currently, LTV ranges from 50% to 70% depending on housing prices and regions, but first-time homebuyers can borrow up to 80% without conditions. The loan limit increases from 400 million KRW to 600 million KRW.

2. Expanded reflection of future income in DSR calculation for youth

DSR (Debt Service Ratio) refers to the amount of money used for all principal and interest repayments relative to annual income. The higher the income or the lower the debt, the more money you can borrow. Youth have often been at a disadvantage in DSR calculations due to low income, but now future earnings will be reflected, allowing them to borrow more. Loan limits for early 20s increase from 38.1% to 51.6%, and for early 30s from 12.0% to 17.7%. Also, when calculating future income, the maturity was previously limited to 20 years, but now borrowers can choose the more favorable option between 20 and 30 years.

3. Removal of credit loan limit within annual income range

Currently, administrative guidance limits credit loan amounts within the range of annual income. However, this restriction will be abolished going forward. Instead, excessive loans beyond income levels will be managed uniformly under borrower-level DSR regulations. Assuming a loan interest rate of 5%, a loan period of 5 years, and an income of 100 million KRW, the credit loan limit increases from 100 million KRW to 160 million KRW.

4. Emergency living expense mortgage loan limit raised from 100 million KRW to 150 million KRW

Currently, emergency living expense mortgage loans up to 100 million KRW are exempt from DSR application. This loan limit will be increased from 100 million KRW to 150 million KRW. Additionally, to prevent excessive financial constraints on borrowers, further relaxation for essential living expenses will be considered in consultation with the financial sector.

5. Variable-rate mortgage loans can be converted to long-term fixed-rate ‘Safe Conversion Loans’

If the principal and interest repayment burden increases after taking a variable-rate mortgage loan, borrowers can convert it to a long-term fixed-rate policy loan through the Korea Housing Finance Corporation. Plans are being considered to implement 20 trillion KRW this year and up to an additional 20 trillion KRW next year. Eligible housing prices are market prices of 400 million KRW or less, and combined household income must be 70 million KRW or less. The loan limit is up to 250 million KRW, and the interest rate is reduced by up to 30 basis points compared to the Bogeumjari Loan.

6. Bogeumjari Loan and Eligible Loan maturity extended from 40 years to 50 years

If you are 34 years old or younger or a newlywed couple within 7 years, you can receive the Bogeumjari Loan and Eligible Loan. The maximum maturity was 40 years but will now be extended to 50 years. Although the total principal and interest to be paid increases, the monthly repayment amount decreases and the maximum loan limit increases.

7. ‘Graduated repayment’ with lower payments when young

The introduction of the graduated repayment method will be expanded. Graduated repayment means setting a smaller principal repayment amount at the beginning of the loan (with a higher interest portion) and gradually increasing the principal repayment over time. It is applicable to those 39 years old or younger and helps reduce interest burden during the low-income youth period. This system will also be applied to 40-year maturity Bogeumjari Loans for young newlyweds going forward.

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