Special BoGeumjari Loan Interest Rate Frozen for 4 Months, Reasons Why It Can't Be Lowered Further

Annual Early 4% Range Applied in June
Attractiveness Declines with 3.48% Mortgage Loan Appearance
Concerns of Negative Margin if Interest Rate Cuts Occur

The interest rate for the Special BoGeumJaRi Loan has been frozen for four consecutive months, widening the gap with market bank mortgage loan rates that have entered the 3% range. Despite the declining appeal of the interest rate, it seems difficult to lower the Special BoGeumJaRi Loan rate for the time being due to concerns such as negative spread.

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According to the Korea Housing Finance Corporation on the 29th, the June interest rate for the Special BoGeumJaRi Loan was set at a preferential rate of 4.05% (10 years) to 4.35% (50 years) annually, and a general rate of 4.15% (10 years) to 4.45% (50 years) annually. The rate has been frozen for four consecutive months since its launch at the end of January.

On the other hand, the lower end of market bank mortgage loan rates has fallen below the lower end of the Special BoGeumJaRi Loan rates. According to the Bankers Association disclosure on the same day, the variable interest rates for mortgage loans (based on principal repayment) at the five major banks?KB Kookmin, Shinhan, Hana, Woori, and NH Nonghyup?were recorded at 3.94% to 6.87% annually, and fixed (hybrid) rates were 3.71% to 6.15% annually. Internet-only banks offer even lower rates. KakaoBank provides mortgage loans at a minimum fixed rate of 3.48% annually, and K Bank applies a minimum fixed rate of 3.71% annually for apartment mortgage loans.

The Special BoGeumJaRi Loan can also be used at an interest rate of 3.25% (10 years) to 3.55% (50 years) annually if the maximum preferential rate is applied, but it is practically difficult to obtain a loan at the lowest rate as all income and age requirements must be met.

Demand for the Special BoGeumJaRi Loan is also slowing down. As of the end of March, the cumulative application amount was 25.6 trillion KRW, an increase of 8.1 trillion KRW compared to the previous month (17.5 trillion KRW), but by the end of April, the cumulative application amount was 30.9 trillion KRW, increasing by only 5.3 trillion KRW.

Despite the waning popularity, the Korea Housing Finance Corporation cannot lower the interest rate further due to concerns about 'negative spread.' The corporation secures funds for the Special BoGeumJaRi Loan by issuing mortgage-backed securities (MBS), and if the Special BoGeumJaRi Loan interest rate falls below the MBS issuance rate, the cost of raising funds exceeds interest income. The recent weighted average MBS issuance rate is in the 4.1% to 4.2% range, already higher than the lower end of the Special BoGeumJaRi Loan rate. A representative from the corporation explained, "Despite the recent rise in government bond yields, we decided to freeze the June interest rate to alleviate the housing cost burden for actual users." Generally, an increase in government bond yields raises MBS issuance rates.

Some view the decrease in demand for the Special BoGeumJaRi Loan as a natural phenomenon resulting from the resolution of high interest rates. Since the Special BoGeumJaRi Loan is a policy financial product introduced to reduce the repayment burden for borrowers during periods of rising interest rates, it is natural for borrowers to return to market banks as interest rates decline.

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