In July, the fixed-rate mortgage loan lending rate at financial institutions rose to 4.76%, up 0.23 percentage points from the previous month. However, excluding the Bogeumjari loan, the rate increase was less than 0.1 percentage point. The Bogeumjari loan drove more than half of the rise in mortgage loan rates.
This is because the recent rise in Government Bonds yields has hit the Bogeumjari loan directly. The Bogeumjari loan rate is closely linked to Government Bonds yields rather than bank mortgage loans. If Government Bonds yields continue to rise due to concerns about fiscal deficits in major countries and the possibility of additional rate hikes by the Bank of Korea, interest burdens could grow for people who took out Bogeumjari loans.
◇ Bogeumjari loan rate climbs into the 5% range... interest now higher than bank mortgage loans
The Bogeumjari loan is a loan that couples with annual income of 70 million won or less can receive through the Korea Housing Finance Corporation (HF) when purchasing dwellings priced at 600 million won or less. It has a higher loan limit than mortgage loans handled by commercial banks and is supplied to low- and middle-income people who lack funds.
According to the Bank of Korea, the Bogeumjari loan rate rose from 4.2%–4.9% in January–June to 5.2% in July and has remained at a similar level as of the 1st of this month. This is higher than mortgage loans handled by commercial banks. According to the Korea Federation of Banks, the average mortgage loan rate for new loans at the four major banks (Shinhan, Woori, Hana, KB Kookmin) last month was 4.4%–5%.
The reason the Bogeumjari loan rate has risen so sharply is that it is linked one-to-one with Government Bonds yields. The five-year Government Bonds yield closed at 4.1% on this day. In January it was around 3.1%–3.3%, but it climbed to around 4% in June. It hit a record high of 4.214% on July 24, dipped to 3.9% at one point in August, and then returned to around 4.1%.
For the Bogeumjari loan, the Korea Housing Finance Corporation (HF) issues mortgage-backed securities (MBS) to raise funds. Government Bonds yields and MBS rates are linked, so changes are reflected immediately in the Bogeumjari loan rate. In contrast, banks can lend using deposits and savings they previously raised at relatively lower rates, so they do not have to pass through Government Bonds yield increases right away.
◇ "Why use it when interest is higher"... Bogeumjari loan loses appeal
When the Bogeumjari loan rate rises, it becomes harder for low- and middle-income households to buy a home. That is because they must pay more interest until they refinance into another loan. As a result, the Bogeumjari loan has recently become less popular. Bogeumjari loan sales in July were 1.6127 trillion won, down 25.4% from the previous month (2.1623 trillion won). This was the lowest level in 13 months, since June last year (1.5174 trillion won).
An official at the Korea Housing Finance Corporation said of the Bogeumjari loan rate increase, "It is affected by the rise in market rates," and "we reflected it in the rate after comprehensively considering the level of lending rates in the banking sector and the direction of policy support."