Reasons Why the Popularity of Anshim Jeonhwan Daechul Declined Despite Lowered Barriers

Housing Prices Relaxed from 400 Million to 600 Million
But Supply Target Reaches Only 35%

[Asia Economy Reporter Hyunji Kwon] The Anshim Jeonhwan Loan, which was expected to reduce the burden of loan interest during the period of interest rate hikes, is facing termination without producing significant effects. This is because there are insufficient incentives to attract borrowers. Opinions suggest that the ‘Special Bogeumjari Loan’ to be launched next year, replacing the Anshim Jeonhwan Loan, must offer clear benefits such as interest reduction and exemption from early repayment fees to achieve policy effectiveness.

According to the Korea Housing Finance Corporation, as of the 13th, 13 business days before the application deadline for the Anshim Jeonhwan Loan, the amount applied for in the 3rd round was about 8.8355 trillion won, which is only 35.3% of this year’s supply target of 25 trillion won.

The Anshim Jeonhwan Loan is a policy financial product that allows borrowers to switch from variable-rate mortgage loans to fixed-rate mortgage loans with an annual interest rate as low as 3.7%. It was launched in mid-September to reduce borrowers’ interest costs caused by high interest rates. The Korea Housing Finance Corporation, which is accepting applications for this product, raised the eligible house price from 400 million won to 600 million won and relaxed the income requirement from 70 million won (combined for couples) to 100 million won last month after the first application results were sluggish. Nevertheless, the performance has not improved significantly.

The main reason is that the interest rate reduction effect upon refinancing is not substantial. Even if borrowers switch from existing mortgage loans to the Anshim Jeonhwan Loan and receive a fixed interest rate, the interest burden does not decrease significantly. Especially for those who took out mortgage loans at annual rates in the 2% range during the ultra-low interest rate period of 2019-2020, the Anshim Jeonhwan Loan interest rate (3.8-4.0% per annum) inevitably feels relatively high. The mixed-type loan, which many borrowers prefer, applies a fixed interest rate for the first five years, so refinancing with the Anshim Jeonhwan Loan actually means paying about 1% more interest.

Accordingly, there are opinions that the ‘Special Bogeumjari Loan’ to be introduced next year must present clear incentives to achieve visible results. The Special Bogeumjari Loan is a product combining the refinancing function of the Anshim Jeonhwan Loan with qualified loans and Bogeumjari Loans, and it is scheduled to be implemented temporarily for one year starting next year.

While the relaxation of the house price criterion to 900 million won, the loan limit to 500 million won, and the abolition of income requirements are positive, the interest rate is expected to be in the high 4% range, higher than the Anshim Jeonhwan Loan, so there is a possibility it may follow a similar path. A banking sector official said, “(Even though the requirements have been relaxed compared to the Anshim Jeonhwan Loan) borrowers will decide based on the interest rates currently applied to them.”

Whether the early repayment fee will be waived is also a variable. The Anshim Jeonhwan Loan did not require borrowers to pay early repayment fees when repaying the loan early, but this has not yet been decided for the Special Bogeumjari Loan. Professor Ji-yong Seo of the Department of Business Administration at Sangmyung University pointed out, “Early repayment fees can be an obstacle to refinancing, so they need to be waived.”

[Image source=Yonhap News]

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