50-Year Mortgage Loan Limits Reduced... 40 Years Applied in DSR Calculation

The calculation criteria for the total debt service ratio (DSR) will be changed to curb the demand for 50-year maturity mortgage loans. Even if the actual maturity is 50 years, it will be assumed to be repaid over 40 years, thereby reducing the limit on 50-year maturity mortgage loans. This measure is interpreted as a response to the recent identification of 50-year maturity mortgage loans as a major cause of the rapid increase in household loans.

According to the financial sector on the 31st, at a household loan-related meeting hosted by financial authorities on the afternoon of the 30th, loan officers (vice presidents) from KakaoBank, NH Nonghyup Bank, Suhyup Bank, KB Kookmin Bank, Hana Bank, which have recently sold many 50-year maturity mortgage loans, and executives from the Korea Federation of Banks received verbal instructions to "maintain the 50-year maturity of the mortgage loan but calculate the DSR assuming a 40-year maturity."

A 50-year maturity mortgage loan is a loan product that allows repayment of principal and interest over 50 years. The longer the maturity, the greater the total principal and interest the borrower must repay. Nevertheless, since the DSR assesses the borrower's ability to handle principal and interest on an annual income basis, borrowers can increase their loan limits immediately. Therefore, the 50-year maturity mortgage loan has been used as a way to circumvent the DSR, which restricts loans. After Suhyup Bank introduced this loan product in January, the five major banks launched similar products one after another since last month.

If commercial banks apply the repayment scenario assuming 40 years instead of 50 years in the DSR calculation process according to the authorities' guidelines, the overall loan limit will decrease. According to the financial industry, the authorities requested at the meeting the day before to fundamentally block the demand for 50-year maturity mortgage loans used to evade DSR regulations and increase loan limits. It is also reported that they announced the guideline to apply the 40-year assumption to all banks as soon as possible.

At the meeting, the authorities also urged not only the change in the 50-year maturity loan criteria but also the financial sector's voluntary efforts to manage household loans. They requested that borrowers be sufficiently informed that the overall repayment burden increases when using 50-year maturity loans and that caution be exercised during the handling process to prevent significant increases in loans in sectors such as multi-homeowners and group loans.

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