Loan Gate Narrows... 50-Year Mortgage 'Halted' and Interest Rates 'Soar'

The door to loans is narrowing. This comes as authorities have recently pointed to 50-year maturity mortgage loans from banks, policy financial products, and the expansion of loans by internet-only banks as the causes of the increasing trend in household loans.

According to the financial sector on the 3rd, recently, financial authorities held a meeting on household loans with loan officers (vice presidents) from KakaoBank, NH Nonghyup Bank, Suhyup Bank, KB Kookmin Bank, Hana Bank, which have sold many 50-year maturity mortgage loans, as well as executives from the Korea Federation of Banks. They verbally instructed, "While maintaining the 50-year maturity for mortgage loans, please calculate the Debt Service Ratio (DSR) assuming a 40-year maturity."

The 50-year maturity mortgage loan is a loan product where principal and interest are repaid over 50 years. It was designed to reduce the burden of 'owning a home' by extending the maturity to lower the interest cost paid at once. However, since the principal and interest to be repaid increase and the extended maturity is being used as a loophole to bypass DSR regulations, authorities see it as one of the main causes of the recent expansion in household debt.

As a result of this measure, the loan limit for 50-year maturity mortgage loans is expected to decrease somewhat. Although the effect of reducing the principal and interest burden remains because the maturity is 50 years, narrowing the DSR calculation standard to 40 years reduces the loan limit accordingly. However, it is reported that the authorities have decided not to impose the previously discussed age restrictions.

Interest rates on loan products are also on the rise. For the Special Bogeumjari Loan, a policy mortgage product operated by the Korea Housing Finance Corporation, from the 7th, the basic interest rates for the general type will be 4.65% (10 years) to 4.95% (50 years) per annum, and for the preferential type (housing price up to 600 million KRW and income up to 100 million KRW) will be 4.25% (10 years) to 4.55% (50 years) per annum. The general type rose by 0.25 percentage points, and the preferential type by 0.2 percentage points.

Internet-only banks, which were also cited as one of the causes of the increase in household debt along with 50-year maturity mortgage loans, are also tightening their lending. KakaoBank changed the eligibility criteria for mortgage loans for home purchase funds from "households with no home, one home, or two homes based on combined household standards" to "households with no home based on combined household standards" starting from the 30th of last month.

Interest rates are also on the rise. As of that day, KakaoBank's variable mortgage loan interest rates (based on new COFIX) range from 4.063% to 7.016% per annum, and K Bank's rates rose to 4.09% to 5.94%, making it difficult to find rates in the 3% range. The financial sector expects this trend to continue for the time being. A financial sector official said, "There is a growing expectation that the U.S. Federal Reserve (Fed) will maintain high interest rates for some time, and bank bond yields are also gradually rising," adding, "Since authorities are tightening the reins on household loans and market conditions are like this, loan interest rates are likely to continue rising."

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