[1mm Financial Talk] 'DSR Barrier' Even in 'Mortgage Refinancing'... Authorities Urge Paying Off Debt First

Daehwan-si 'DSR Decline → Loan Burden Relief → Household Loan Decrease' Effect Exists
But Borrowers Exceeding DSR Regulation Level Cannot Refinance Loans
Authorities: "Borrowers Exceeding DSR Regulation Ratio Must Repay Debt First"

On the 14th, in a real estate-dense shopping area in Songpa-gu, Seoul, where the decline in real estate prices and the transaction freeze phenomenon continue, apartment listings with market prices are posted. Photo by Kang Jin-hyung aymsdream@

Starting as early as the end of this December, mortgage loans (hereinafter referred to as "mudamdae") and jeonse deposit loans (hereinafter referred to as "jeonsedae") will also be able to receive refinancing loan services (moving loans to cheaper interest rates) through smartphone apps. This expands the refinancing scope following existing unsecured loans. The advantage is that refinancing can be done through interest rate comparison apps such as Toss, Naver Pay, Kakao Pay, and Finda without visiting a bank, but there are also drawbacks.

Whether refinancing loans are possible depends on whether 'my total debt service ratio (DSR) exceeds the regulatory level or not.' If the DSR exceeds 40% in the primary financial sector or 50% in the secondary financial sector, refinancing loans themselves are not possible. DSR refers to the proportion of principal and interest that must be repaid annually from one’s annual income. For an office worker with an annual salary of 40 million KRW, this means they can only receive loans where the principal and interest repayment does not exceed 16 million KRW or 20 million KRW per year, respectively. This system was strengthened by financial authorities to prevent a rapid increase in household debt and to stop borrowers from taking on excessive debt.

The problem is that applying DSR regulations to refinancing loans contradicts the purpose of refinancing loans. "If loans are refinanced at a lower interest rate, the DSR decreases → the borrower's loan burden is reduced → household loans decrease." Despite this effect, authorities feel burdened to increase exceptions to the DSR regulation. Therefore, they apply DSR regulations on the grounds that "refinancing loans are still loans."

A senior official from the Financial Services Commission said, "When the refinancing loan service for unsecured loans was introduced, similar issues were raised but have yet to be improved," adding, "Borrowers with high DSRs must partially repay existing debts to refinance."

The Bank of Korea raised the base interest rate by 0.5 percentage points, and the real estate transaction market's winter is expected to prolong. On the 13th, a red light was on at a traffic signal near an apartment in downtown Seoul.

Due to the ongoing interest rate hike trend since last year, financial consumers’ DSR ratios are gradually increasing even without any action. Considering this, voices from the financial sector suggest that DSR regulations should be relaxed at least for refinancing loans. A representative from a commercial bank said, "Refinancing loans do not increase the loan limit, and it is also problematic that the DSR ratio is higher for those with lower income levels," adding, "If we consider easing borrowers’ interest burdens, the door should naturally be opened to allow them to move to cheaper interest rates."

According to the Bank of Korea, as of the fourth quarter of last year, the average DSR of household loan borrowers was 40.6%. In particular, the DSR of vulnerable borrowers was 66.6%. This means that vulnerable borrowers have even less accessibility to refinancing loan services.

Meanwhile, 19 loan comparison platforms and 32 financial companies have expressed their intention to participate in the refinancing loan platform for mudamdae and jeonsedae. Not only banks but also insurance companies, savings banks, and specialized credit finance companies that handle many mudamdae loans will participate.

Looking specifically at the refinancing targets, for mudamdae, it applies to apartment mortgage loans for home purchase funds and living stabilization funds. Mid-term loans and balance payment loans are not included. The special Bogeumjari Loan operated by the Korea Housing Finance Corporation is also excluded. Villas and officetels are also excluded from refinancing loan targets. When a refinancing loan application is submitted, the loan limit and interest rate must be presented in real time, but since market price inquiries for collateral evaluation are immediately possible only for apartments, this decision was made. It is difficult to implement loan transfers for multi-family or row houses.

However, in the case of jeonsedae, there are no restrictions by housing type or loan product, and all jeonsedae loans are eligible for refinancing. Most jeonsedae loans are based on guarantees from the Housing and Urban Guarantee Corporation (HUG), Korea Housing Finance Corporation, and SGI Seoul Guarantee. Therefore, the deposit amount is more important than the housing price, and this can be immediately confirmed by simply checking the lease contract, making refinancing possible for all jeonsedae loans.

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