🚨 Dunchon Jugong Balance Payment Loan Limit Increase

Today Korean Economic News | 2025.01.07

📌 Banks Consecutively Increase Dunchon Jugong Balance Payment Loan Limits... Loan Interest Rates Remain Unchanged

💬 Banks have increased Dunchon Jugong balance payment loan limits, but loan interest rates remain unchanged. KB Kookmin Bank increased its limit from 300 billion won to 600 billion won, and NH Bank and Woori Bank also increased their limits, but Shinhan and Hana Bank maintained their existing limits.

As a result, the total loan limit of the five major banks increased from 950 billion won to 1.55 trillion won. KB Kookmin Bank's Olympic Park Foreon balance payment loan interest rate is 4.29-4.79% per annum, with an additional interest rate of 1.3 percentage points added to the 5-year financial bond interest rate.

1️⃣ Easy to Understand

As the move-in date approaches for Dunchon Jugong reconstruction apartments (Olympic Park Foreon), banks are increasing their balance payment loan limits. Simply put, the total amount of money that prospective residents can borrow from banks has increased.

For example, Mr. Kim, who won the right to purchase a Dunchon Jugong apartment, had paid the down payment and installment payments but was looking into bank loans to prepare the remaining balance of 500 million won. Initially, he was concerned because loan limits were restricted, but as banks increased their limits, he became able to borrow the amount he wanted. However, since loan interest rates are still high, the monthly interest burden he has to repay has not significantly decreased.

While the loan limit increase has eased funding constraints for prospective residents, the repayment burden due to high interest rates remains a challenge. In particular, multi-home owners or those purchasing for investment purposes may face difficulties in preparing balance payments as loans may be restricted due to regulations.

2️⃣ Economic Terms

📕 Balance Payment Loan

A balance payment loan refers to borrowing the remaining amount (balance payment) excluding the down payment and installment payments when purchasing a house.

• It typically takes place right before moving in and can be considered a form of mortgage loan.
• It is often processed along with the transfer of property ownership registration, and loan screening criteria are similar to general mortgage loans.

📕 Loan Limit

Loan limit refers to the maximum amount of loan that a financial institution can provide for a specific product or purpose.

• Each bank has a set limit, which is determined according to the bank's fund management plan and risk management strategy.
• Once the limit is used up, no more loans are possible from that bank, so when demand is high, limit increases occur.

📕 Additional Interest Rate

Additional interest rate refers to the interest rate charged in addition to the base rate.

• It can vary depending on the borrower's creditworthiness, collateral value, loan purpose, etc.
• The higher the additional interest rate, the greater the total interest cost the borrower has to bear.

📕 Financial Bonds

Financial bonds are bonds issued by banks or financial institutions to raise funds.

• Financial bond interest rates reflect banks' funding costs and serve as an important factor in determining loan interest rates.
• 5-year financial bonds refer to financial bonds with a 5-year maturity and are often used as a reference rate for medium to long-term loans.

3️⃣ Principles and Economic Outlook

💡 Background of Loan Limit Increase

• The background for banks increasing Dunchon Jugong balance payment loan limits is the surge in funding demand ahead of the move-in to a large-scale reconstruction complex. In particular, Dunchon Jugong (Olympic Park Foreon) is Seoul's largest reconstruction complex, with significant balance payment loan demand from prospective residents. From the banks' perspective, this is also an opportunity to secure stable collateral and quality customers. Additionally, it can be seen as a strategic choice by banks seeking relatively safe loan destinations amid recent housing market uncertainties.

💡 Reasons for Maintaining Interest Rates

• There are several reasons why interest rates have not decreased despite increased loan limits. First, the base rate still remains high, resulting in high funding costs for banks. Also, recent inflation and economic uncertainties limit the capacity for interest rate reductions. Banks are judging that maintaining interest rates is safer from a risk management perspective, and policy considerations to prevent rapid changes in the housing market are also at play. Ultimately, while limit increases result from competition among banks, interest rates are determined by market conditions and policy environment.

💡 Impact on the Housing Market

• This loan limit increase is expected to help prospective Dunchon Jugong residents with their funding. However, since the interest burden remains significant due to high interest rates, some buyers may need to readjust their financial plans. Additionally, the impact of such loan limit increases on the overall housing market is expected to be limited. Due to the characteristics of reconstruction complexes, where many existing homeowners are involved, the focus is on easing the funding burden for existing buyers rather than creating new demand. However, if the move-in to this large-scale complex proceeds smoothly, it could send a stabilizing message to the surrounding real estate market.

4️⃣ In Conclusion

While the banking sector's increase in Dunchon Jugong balance payment loan limits has eased funding constraints for prospective residents, the interest burden due to high interest rates remains a challenge. This can be seen as a result reflecting the current financial environment and housing market situation.

Prospective residents have increased funding possibilities due to the loan limit increase, but must adequately consider the interest burden when making long-term repayment plans. In particular, multi-home owners or those purchasing for investment purposes need a more cautious approach as they may face constraints due to regulations.

Financial institutions face the challenge of finding a balance between securing stable assets and managing risks. While limit increases result from competition among banks, sound lending practices and risk management must be continuously maintained.

From the perspective of policy authorities, maintaining a balance between housing market stability and financial system stability is important. They need to closely monitor the impact of loan limit increases on the housing market and prepare appropriate policy responses if necessary.

Ultimately, while this loan limit increase helps prospective residents with their funding in the short term, there is a need to continuously evaluate its effects and impacts within the context of long-term housing market and financial environment changes. It is important for prospective residents to establish prudent financial plans considering their financial situation and to prepare strategies for interest rate fluctuations.