“Honey, find out quickly”… 2%·200 million ‘stepping stone·support’ loan, interest rate adjustment starting tomorrow

Late payments on your stepping stone or support loans will incur an additional interest rate.

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[Photo = Yonhap News]

As household loans continue to rise, the government is planning to adjust the interest rates for stepping stone (purchase) and support (rental) loans to around 2%. This is seen as a response to criticism that policy-based loans have served as a catalyst for the increase in household loans.

According to the financial sector on the 30th, starting on the 31st, each bank will modify the method for calculating interest rates on stepping stone and support loans.

From the 31st, if you apply for a support loan for 30% or less of the limit (70-80% of the rental deposit for each product), a preferential interest rate of 0.2 percentage points will be offered. However, if you extend the term of a support loan and fail to repay 10% or more of the loan, a surcharge of 0.2 percentage points, exceeding the current 0.1 percentage points, will be applied.

Additionally, starting from the third extension, income will be reassessed, and if it surpasses the income threshold, an extra 0.3 percentage points will be added to the highest interest rate for each rental deposit bracket.

In other words, the changes aim to encourage borrowing less related loans and to increase loan interest rates for those who do not repay promptly.

For stepping stone loans with a maximum limit of 200 million won, the interest rate will also decrease by 0.1 percentage points from the 31st for loans under 30% of the limit (house appraisal amount × collateral recognition ratio 60-100% – senior bonds – rental deposit).

In addition to the existing fixed interest rates and 5-year variable interest rates, a variable interest rate will be introduced, which will be directly influenced by changes in the interest rate set by the Ministry of Land, Infrastructure and Transport.

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[Photo = Korea Housing Finance Corporation]

A banking official explained, “The recent surge in household loans continues, with a significant portion being policy loans, making it challenging for the government to directly manage these loans.” He further added, “The interest rates are considerably lower than those offered by commercial banks, and the exemption from debt service ratio (DSR) regulations has significantly impacted this situation.”

In fact, last month, housing mortgage loans from banks rose by 6.3 trillion won, with 3.8 trillion won attributed to stepping stone and support loans. The total for stepping stone and support loans executed with bank funding amounted to 18.1 trillion won in just the first half of this year.

This constitutes 69.2% of the total increase in housing mortgage loans (KRW 26.15 trillion) in the banking sector. Due to this and other factors, some in the financial sector suggest that the requirements for stepping stone loans will soon be relaxed from the current combined annual income threshold of 85 million won for married couples.

In the meantime, financial authorities are set to introduce the second phase of the DSR stress test in September, which will apply a certain percentage of interest to floating rates, aiming to tighten household debt. Additionally, authorities will conduct thorough inspections of mortgage loans and check for DSR circumvention during on-site bank inspections.

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Impact of Delayed Payments on Stepping Stone and Support Loans

If you pay off your stepping stone or support loan late, you will be charged an additional interest rate.

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[사진 = 연합뉴스]

The Rising Trend of Household Loans

As household loans continue to surge, the government is moving to adjust the interest rates for stepping stone (purchase) and support (rental) loans at around 2%. This change is interpreted as a measure in response to criticism that policy-based loans have acted as a ‘fuse’ for the increase in household loans.

Changes Effective from July 31

According to the financial sector on the 30th, each bank will change the method of calculating stepping stone and support loan interest rates starting on the 31st. Here are the key updates:

• For support loans, if you apply for a loan of 30% or less of the limit (70-80% of the rental deposit), a preferential interest rate of 0.2% will be applied.
• If you extend the term of a support loan and fail to repay 10% or more of the loan, a surcharge of 0.2%, which is higher than the existing 0.1%, will be applied.
• From the third extension, income will be re-examined. If it exceeds the income standard, an additional 0.3% point will be applied to the highest interest rate for each rental deposit section.

Encouraging Responsible Borrowing

These changes are designed to encourage borrowers to take out loans judiciously and to timely repay existing loans. If payments are not made in a timely manner, the loan interest rates will be increased as a deterrent to prolonged borrowing.

Details on Stepping Stone Loans

The stepping stone loan, which has a maximum limit of 200 million won, will also see its interest rate reduced by 0.1% for loans under 30% of the limit, calculated as follows:

• House appraisal amount × Collateral recognition ratio (60-100%) – Senior bonds – Rental deposit.

Understanding Variable Interest Rates

In addition to the existing fixed interest rate and 5-year variable interest rate, a new variable interest rate will be introduced. This rate will immediately reflect any changes in interest rates as decided by the Ministry of Land, Infrastructure and Transport.

Explaining Recent Trends in Household Loans

A banking official stated, “The recent surge in household loans continues, and a significant portion of these are policy loans, making it difficult for the government to directly manage policy loans.” He added that these loans are significantly lower than those of commercial banks, which has driven many borrowers towards them.

Statistical Insights

Last month, the amount of housing mortgage loans from banks increased by 6.3 trillion won, which included:

• 3.8 trillion won in stepping stone and support loans.
• A total of 18.1 trillion won in stepping stone and support loans executed with bank funds in the first half of the year.

This figure represents 69.2% of the total increase in housing mortgage loans, which amounted to 26.15 trillion won in the banking sector.

Potential Adjustments to Loan Requirements

Due to the surge in demand, some in the financial sector suggest that the requirements for stepping stone loans may soon be lowered from the current combined annual income limit of KRW 85 million for married couples.

Future Regulatory Changes

The financial authorities also plan to introduce the second stage of the Debt Service Ratio (DSR) stress test in September, which will add a certain amount of interest to the floating rate to tighten household debt. Furthermore, they will be intensively checking the appropriateness of examining mortgage loans and instances of DSR circumvention through on-site inspections of banks.

Benefits of Timely Repayment

Understanding the implications of late payments is crucial for borrowers:

• **Avoid Increased Interest**: Repaying on time helps in maintaining lower interest rates.
• **Improved Credit Score**: Timely repayments positively impact credit scores, making future borrowing easier and cheaper.
• **Flexibility in Financial Planning**: Keeping loans manageable allows for better financial planning and less stress.

Practical Tips for Borrowers

To manage loans effectively, consider implementing the following strategies:

• **Set Up Automatic Payments**: Automate your loan repayments to avoid missing deadlines.
• **Create a Budget**: Monitor your income and expenses to ensure you can meet your repayment obligations.
• **Communicate with Lenders**: If you anticipate trouble making a payment, contact your lender early to discuss options.

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