[1mm Financial Talk] Loan Conversion at 3.7% in a 6% Interest Era..."Just Switch Again When Rates Drop"

Advantages of Reducing Interest Burden During Rate Hikes
No Loss Even When Interest Rates Fall in the Future
You Can Refinance If Market Rates Drop Below Anshim Conversion Loan Rates

Commercial Banks Face Reduced Profits and Bear Complaint Risks, Triggering 'Emergency' Situation

As the U.S. central bank, the Federal Reserve (Fed), hinted at additional interest rate hikes, attention is increasing on whether the Bank of Korea's Monetary Policy Committee will raise rates at its meeting scheduled for the 25th. The photo shows a loan counter at a commercial bank in downtown Seoul on the 19th. Photo by Kim Hyun-min kimhyun81@

[Asia Economy Reporter Sim Nayoung] Seungmin Lee (36), an office worker living in Cheongju, Chungcheongbuk-do, took out a loan of 170 million KRW from a bank when he bought a 400 million KRW apartment in February this year. At that time, the variable interest rate on the mortgage loan was 4.5%. Just six months later, in August, he was notified that the interest rate had risen to 5.5%. Lee said, "Originally, the monthly interest was 860,000 KRW, but it increased to 950,000 KRW as the interest rate went up. Since I am the sole breadwinner, I had already cut back on spending when buying the house, and I am worried about how much more the interest rate will rise, so I am eagerly waiting to apply for the Anshim Jeonhwan Loan."

As mortgage loan interest rates at commercial banks have risen up to 6%, the Anshim Jeonhwan Loan, which starts on the 15th, is attracting attention. This system encourages the use of the Korea Housing Finance Corporation’s (hereafter KHFC) Bogeumjari Loan to reduce the interest burden on low-income groups during periods of rising interest rates. Fixed interest rates of 3.8?4.0% (3.7?3.9% for youth) can be applied until the mortgage loan matures. This is the third time the program has been implemented, following the first round in March 2015 and the second in September 2019.

Those selected as Anshim Jeonhwan Loan recipients can enjoy the advantage of reducing interest burdens during periods of rising rates, and they will not suffer losses even if interest rates fall in the future. If market interest rates fall below the Anshim Jeonhwan Loan rate, borrowers can refinance immediately. A Financial Services Commission official explained, "Many users from the first and second rounds of the Anshim Jeonhwan Loan switched to lower rates during the ultra-low interest rate period. There are no restrictions on switching at any time."

Applications for the Anshim Jeonhwan Loan can be made through the apps and branches of the six major banks (KB Kookmin, Shinhan, Hana, Woori, Nonghyup, and IBK). Those who borrowed from regional banks or savings banks must apply through KHFC.

Banks, which must handle the long-term fixed-rate products that are not available at commercial banks on behalf of the government, are in a state of emergency. A commercial bank official said, "From the bank’s perspective, there is a risk of reduced profits as the interest rates for customers who used to pay high interest rates decrease, and there may be difficulties due to complaints arising during the screening process."

The Anshim Jeonhwan Loan involves transferring bank loans to KHFC. After conducting an asset review of the applicant, KHFC acquires the loan claims from the bank. Some applicants may be unable to transfer their loans due to incomplete documentation. In such cases, banks usually go through a supplementary process and KHFC conducts a re-examination. However, if the applicant cannot be contacted and the deficiencies are not resolved, problems may arise. If the applicant does not refinance the loan claim back to the bank, it may become impossible to transfer the mortgage debt to the buyer when selling the house, leading to complaints against the bank.

Banks expect that applicants will flock to branches due to eligibility and document preparation requirements, and the process of submitting screened applicants to KHFC will be complicated. Shinhan Bank has prepared a 24-hour AI consultation service, KB Kookmin Bank has a call bot service, and Woori Bank has enabled the entire process from application to execution to be conducted non-face-to-face, but internally they are in an emergency situation.

A bank employee who handled applications during the first round of the Anshim Jeonhwan Loan said, "At that time, bank employees worked overnight reviewing applicants’ documents and joked that 'now even beef won’t be trusted,' showing how hard it was. To prevent the risk of the Anshim Jeonhwan Loan from transferring to banks, the application process must be handled as meticulously as possible."

The eligibility criteria have become much stricter than in the first and second rounds. The eligible housing price has been lowered from 900 million KRW to 400 million KRW, and the income requirement has dropped from a combined 85 million KRW for couples to 70 million KRW. The loan limit has also been reduced from 500 million KRW to 250 million KRW. Since final recipients are selected in order of lower housing prices, support will not be available once the total budget of 25 trillion KRW is exhausted. The first round is for houses priced at 300 million KRW or less and runs from September 15 to 28, and the second round is for houses priced at 400 million KRW or less and runs from October 6 to 13.

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