[Practical Finance] Should You Make a 'Decision to Own a Home' with the Special BoGeumJaRi Loan?

Loans up to 500 million KRW for homes under 900 million KRW
No income limits and DSR restrictions lifted
"Interest rates similar to commercial banks, so careful review needed"

#Mr. A, in his 30s living in Eunpyeong-gu, Seoul, planned to purchase an apartment last fall by combining his savings and loans at the time of his marriage. However, due to soaring interest rates and falling housing prices, he postponed his dream of owning a home and has been living in a one-year monthly rental. Recently, as his wife became pregnant, his concerns deepened, but upon hearing about the launch of the Special Bogeumjari Loan, he finally decided to buy an apartment. Mr. A said, "Since loans up to 500 million KRW are available, I plan to secure my home in Wirye, close to my in-laws' house in Songpa," adding, "The interest rate is higher than expected, which worries me, but it's positive that I can switch to another loan later without fees."

#Mr. B, in his 30s, who bought his home in Gangseo-gu, Seoul, two years ago by leveraging all his assets during the hot real estate market, now faces mortgage interest rates reaching the 6% range due to continuous rate hikes. Burdened by monthly interest payments and worried about further increases, he was considering switching to a fixed-rate product when he heard about the launch of the Special Bogeumjari Loan with no prepayment penalties. Mr. B said, "I was going to switch even if I had to pay fees, but knowing there are none makes me feel relieved," adding, "I will carefully compare it with commercial bank rates before deciding."

The Special Bogeumjari Loan is being launched for real demand buyers and leveraged buyers in the high-interest rate era of the real estate market. With a minimum annual interest rate of 3.75%, borrowers can take out up to 500 million KRW when purchasing homes priced at 900 million KRW or less. Moreover, there is no income restriction. Despite extensive real estate regulation easing, the government has even loosened the total debt service ratio (DSR) restrictions that had been rigid. Newlyweds and young professionals can receive preferential interest rates, making the Special Bogeumjari Loan a potential opportunity for homeownership.

◇Special Bogeumjari Loan for ‘leveraged buyers’... Up to 500 million KRW loan without income restrictions= Applications for the Special Bogeumjari Loan will begin on the 30th of this month. This newly introduced loan combines three existing policy mortgage products: the Bogeumjari Loan, the Safe Conversion Loan, and the Qualified Loan. As a new policy loan, its benefits are quite exceptional.

The eligible home price for loans is 900 million KRW or less. Previously, the Bogeumjari Loan was only available for homes priced at 600 million KRW or less, which limited its effectiveness in high-priced metropolitan areas compared to provinces. With the lowered loan threshold, the range of housing options for real demand buyers has expanded.

The loan limit has also increased by nearly 40%. While the previous Bogeumjari Loan allowed borrowing up to 360 million KRW, the Special Bogeumjari Loan permits up to 500 million KRW. A key advantage is the exclusion of the total debt service ratio (DSR) application, which considers the repayment ratio of principal and interest across all financial institutions. Currently, borrowers with loans exceeding 100 million KRW are subject to a 40% DSR regulation.

◇Interest rates higher than expected... Minimum 3.75% with preferential rates= However, it is important to carefully compare the interest rates, which are the most critical factor when borrowing, with those of commercial banks. The Special Bogeumjari Loan’s rates are not as low as the market expected, and despite recent base rate hikes, mortgage rates at commercial banks have been trending downward. The interest rate for the Special Bogeumjari Loan is 4.65?4.95% for homes priced at 600 million KRW or less or for couples with combined annual income of 100 million KRW or less; for homes priced above 600 million KRW or incomes exceeding 100 million KRW, the rate is 4.75?5.05%. Given that the variable mortgage rates at the four major commercial banks?KB Kookmin, Shinhan, Hana, and Woori?range from 4.780% to 7.410% (as of the 13th), the lower bound of the Special Bogeumjari Loan rates is not significantly different.

However, the Special Bogeumjari Loan offers up to a 0.9 percentage point reduction in interest rates if certain conditions are met. A 0.1 percentage point discount is available for electronic contracts, and an additional 0.80 percentage point preferential rate applies for low-income youth, socially disadvantaged groups, newlywed households, or unsold housing, lowering the rate to a minimum of 3.75%.

Fortunately, the Special Bogeumjari Loan waives fees not only when switching from existing mortgages but also when prepaying and converting to other products. This means borrowers can later obtain better mortgage conditions from commercial banks. The Financial Services Commission stated, "This is to help low-income and real demand buyers secure homes and to improve the qualitative structure of household debt by reducing risks from interest rate fluctuations," adding, "It will support funds for home purchases by the homeless, refinancing or returning jeonse deposits for one-home owners, and temporary two-home owners who are switching homes."

◇Four out of five homes nationwide priced at 900 million KRW or less... Highest ratio in Seoul found in Nowon= Among apartments nationwide eligible for the Special Bogeumjari Loan, four out of five are priced at 900 million KRW or less. According to Real Estate R114, apartments priced at 900 million KRW or less account for 79.8% of the total nationwide. In Seoul, the districts with the highest proportions of apartments priced at 900 million KRW or less are Nowon-gu (80.8%), Dobong-gu (79.6%), Jungnang-gu (78.0%), Geumcheon-gu (75.6%), Gangbuk-gu (73.9%), Guro-gu (65.2%), Gwanak-gu (54.6%), and Eunpyeong-gu (51.7%).

The proportion of apartments priced between 600 million and 900 million KRW, newly included in the policy finance support due to the Special Bogeumjari Loan, is 19.5% nationwide and 27.2% in the metropolitan area. In Seoul, this proportion is 25.6%.

This survey was conducted by Real Estate R114 by calculating the market prices of 5.71 million apartment households nationwide and determining the proportion of apartments by price range: 600 million KRW or less, 600 million to 900 million KRW, and over 900 million KRW. The regional proportions of apartments priced at 900 million KRW or less are 67.9% in the metropolitan area and 98.9% in provinces.

Yoon Ji-hae, head of the research team at Real Estate R114, said, "The Special Bogeumjari Loan, which has no income restrictions and excludes DSR application, is expected to attract interest from real demand buyers considering homeownership," adding, "Temporary two-home owners can also be treated as long as they dispose of their existing home, which could influence an increase in transactions of urgent sales priced at 900 million KRW or less not only in Seoul but also in other regions."

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