The general interest rate for the government-backed Home Mortgage Loan has begun to exceed the average mortgage rates offered by commercial banks. Until last year, these rates were lower than bank loans, but five rate hikes this year have reversed that trend. Despite this, the total debt service ratio (DSR) regulation exemption has continued to attract demand, pushing the outstanding balance of Home Mortgage Loans to over 115 trillion won.
According to the Korea Housing Finance Corporation, the general interest rate for the 'Akkime Home Mortgage Loan' in August ranges from 4.90% to 5.20% per year.
The interest rates for Home Mortgage Loans have risen sharply this year, with increases of 0.25 percentage points in January, 0.15 in February, 0.30 in April, 0.25 in May, and 0.30 in July, totaling a 1.25 percentage point increase.
As a result, the interest rate advantage that existed over bank loans until last year has disappeared. In December of last year, the general interest rate for the Akkime Home Mortgage Loan with a 10-year maturity was 3.65%, which was 0.58 percentage points lower than the average mortgage rate for new bank loans (4.23%). However, the situation began to reverse in April of this year, and by June, the general interest rate for the 10-year Home Mortgage Loan (4.60%) was 0.24 percentage points higher than the average bank mortgage rate (4.36%).
Despite the decline in interest rate competitiveness, demand for Home Mortgage Loans remains strong. In June, sales reached 2.1623 trillion won, a 26% increase from the previous month (1.7132 trillion won). The outstanding balance at the end of June was approximately 115.4212 trillion won, the highest level since the second half of 2022 to the first half of 2023, excluding the temporary refinancing product known as the Safe Conversion Loan.
The continued demand despite rising rates is attributed to the exemption from DSR regulations. Unlike general bank mortgage loans, Home Mortgage Loans do not apply DSR regulations at the borrower level. For borrowers whose loan limits are restricted based on income and existing debt, the Home Mortgage Loan serves as an alternative, even if the interest rate is somewhat higher. As lending regulations tighten in the banking sector, actual loan amounts become a priority over interest rates, drawing more real demand to Home Mortgage Loans.
The recent increases in Home Mortgage Loan rates are directly linked to rising funding costs, such as the issuance rates of mortgage-backed securities (MBS). Since Home Mortgage Loans are funded through MBS issued by the Korea Housing Finance Corporation, an increase in long-term market interest rates puts upward pressure on these rates. The Korea Housing Finance Corporation states that when determining rates, it considers various factors in addition to funding costs as a policy financing institution.
Some analysts suggest that the recent expansion of Home Mortgage Loan supply may have influenced the need for rate adjustments to manage demand. A financial sector official noted, "As Home Mortgage Loans are exempt from DSR regulations, there is a significant possibility that real demand will concentrate as the barriers to bank loans increase. Given the challenges in continuing to expand policy financing, the recent rate hikes may also reflect the necessity to manage demand to some extent."
* This article has been translated by AI.
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