Increase in Anshin Conversion Loan Withdrawals as Mortgage Loan Rates Enter 3% Range

Repayment Amount of 8.6 Billion KRW in Q1 This Year
Higher Interest Rates Than KB Kookmin Bank and K Bank
Experts Say "A Natural Phenomenon Due to High-Interest Rate Resolution"

Cases of early withdrawal from the fixed-rate policy product, Anshim Conversion Loan, which closed last year, are increasing. This is due to the decline in interest rate competitiveness as some commercial banks' mortgage loan rates have entered the 3% range and are trending downward.

The Anshim Conversion Loan is a policy financial product that converts variable-rate mortgage loans into fixed-rate mortgage loans with a minimum annual interest rate of 3.7%. The third round of Anshim Conversion Loan applications was conducted from September to December last year, with a total application amount of 9.4787 trillion KRW (74,931 cases). This achieved only about 38% of the target 25 trillion KRW, leading to an assessment of failure in popularity.

According to data requested by Asia Economy from the Korea Housing Finance Corporation on the 18th, as of the first quarter of this year (January to March), the number of repayments for the third Anshim Conversion Loan was 58 cases, with a repayment amount of 8.6 billion KRW. There were zero cases in January and February, with repayments concentrated in March. Repayment means that the borrower either disposed of the owned house or switched to another mortgage loan. Although the repayment amount is low compared to the total application amount, the increase in borrowers withdrawing early just a few months after applying raises concerns about the short validity period of this policy finance.

This is because some commercial banks' mortgage loan rates have fallen below the Anshim Conversion Loan rates, reducing its interest rate appeal. The Anshim Conversion Loan interest rates range from 3.7% to 4.0% annually, depending on the loan term (10 to 30 years) and borrower age; for example, a 10-year term and borrowers aged 39 or younger (as of September 2022) receive a 3.7% annual rate. In contrast, KB Kookmin Bank's mixed (fixed) mortgage loan rates currently range from 3.64% to 5.04%, and variable rates range from 3.66% to 4.56%, with the lower end below that of the Anshim Conversion Loan. K Bank's fixed-rate apartment purchase mortgage loan at 3.79% is at a similar level. These banks' mortgage loan rates entered the 3% range for the first time since the first half of last year due to factors such as the decline in COFIX (Cost of Funds Index). If the downward trend in commercial bank rates continues, the interest rate gap with the Anshim Conversion Loan will widen further, likely increasing early withdrawal cases. The Anshim Conversion Loan also has no early repayment fees, making refinancing less burdensome.

Some view this as a natural phenomenon following the resolution of high interest rates. The purpose of introducing the Anshim Conversion Loan was to alleviate the burden on vulnerable groups when market interest rates unexpectedly rose sharply. Kim Miru, a research fellow at the Korea Development Institute (KDI), explained, “It is not a bad situation for financial consumers to return to commercial banks as market interest rates fall.”

[Image source=Yonhap News]

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