🚨 Home Loan Refinancing Resumes
Today Korean Economic News for Beginners | 2025.09.19
0️⃣ Big 4 Banks Join to Reduce Interest Burden
📌 Refinancing blocked by June 27 rules comes back after 3 months - Good news for borrowers
💬 Home loan refinancing in the Seoul area, blocked by June 27 regulations, is resuming after 3 months. The government accepted criticism and now allows refinancing without increasing loan amounts. Kookmin, Shinhan, Hana, and Woori banks are gradually restarting their services. Internet banks have already begun, and some online loans have returned to normal. Since the regulations even blocked loan transfers and caused much inconvenience, this measure is expected to reduce borrowers' interest burden. However, banks have different review standards and interest rate conditions, so borrowers need to carefully compare options.
1️⃣ Easy to Understand
For the past few months, it was almost impossible to switch existing loans to lower interest rates in the Seoul area. Now refinancing is possible again, allowing many borrowers to reduce their interest burden.
Let me first explain why refinancing was blocked. On June 27 this year, the government announced strong regulations to control household debt. They limited 'living stability fund purpose home loans' to 100 million won, but the problem was that refinancing loans were also grouped into the same category.
With average apartment prices in the Seoul area being hundreds of millions of won, refinancing was nearly impossible with a 100 million won limit. For example, if someone had a 500 million won loan on a 1 billion won house and wanted to move to a bank with lower interest rates, they could only borrow 100 million won, making it unclear how to handle the remaining 400 million won.
Because of this, even though total loan amounts didn't increase, opportunities to save on interest were blocked, leading to much criticism. The government also recognized these problems and allowed "refinancing without loan increases" in their September measures.
Looking at the current situation, internet banks like Kakao Bank and Toss Bank have already resumed refinancing, and the four major commercial banks are also gradually starting services after updating their systems.
The benefits of refinancing are clear. If someone currently has a loan at 4.5% annual interest and moves to a bank with 3.8% interest, they can save millions of won in interest annually. With a 500 million won loan, a 0.7 percentage point difference means about 3.5 million won per year, or about 300,000 won less burden per month.
However, refinancing isn't always the right choice. Banks have different preferential conditions, and you must consider additional costs like early repayment fees and new loan fees. Also, current preferential rates might disappear, so you need to carefully calculate the actual benefits.
While the regulatory relaxation expanding borrowers' choices is positive, careful comparison and review is needed rather than hasty decisions.
2️⃣ Economic Terms
📕 Home Mortgage Loan
A home mortgage loan is borrowing money from a bank using your house as collateral, possible up to a certain percentage of the house value.
- With collateral, interest rates are lower and limits are higher than unsecured loans.
- The loan amount is determined by LTV (Loan-to-Value ratio).
- Various products exist including variable and fixed rates, equal payment and equal principal payment methods.
📕 Refinancing (Loan Transfer)
Refinancing means changing your existing loan to another financial institution's loan, allowing you to reduce interest burden with better conditions.
- You can transfer to lower interest rates or better repayment conditions.
- Non-increase refinancing means borrowing only the amount of your existing loan balance.
- You must consider additional costs like early repayment fees and new loan fees.
📕 LTV (Loan To Value Ratio)
LTV means the maximum loan ratio compared to collateral value, applied differently by region and housing type.
- For example, if a house is worth 1 billion won and LTV is 40%, you can borrow up to 400 million won.
- Most regulated areas in the Seoul region are limited to 40% or less.
- Preferential conditions sometimes apply to first-time buyers or newlywed couples.
📕 June 27 Real Estate Measures
The June 27 real estate measures are loan regulation reinforcements announced by the government in June to control household debt.
- Limited Seoul area 'living stability fund purpose home loans' to 100 million won.
- Refinancing was also classified in the same category, effectively blocking loan transfers.
- When market confusion and borrower inconvenience grew, partial relaxation measures were announced in September.
3️⃣ Principles and Economic Outlook
✅ Loan Regulations and Market Distortion
This is analyzed as a representative case where excessive loan regulations actually caused market distortion.
First, regulations aimed at controlling household debt created unintended side effects. The core of the June 27 measures was to prevent household debt increases by controlling new loans. However, by grouping refinancing into the same framework, they also blocked opportunities for existing borrowers to reduce interest burden. Refinancing actually had the positive function of reducing borrower burden without increasing total loan size, but restricting this across the board was considered excessive regulation. The government also recognized these problems and revised the policy after just 3 months.
Second, workarounds to avoid regulations increased, making the financial market operate inefficiently. When refinancing was blocked, some borrowers used complex methods like taking unsecured loans to repay existing home loans, then taking new home loans again. Also, workarounds like borrowing under family members' names or combining rental deposit loans with home loans appeared. These methods increased transaction costs and harmed the transparency of the financial system. In the end, while regulations were strengthened, actual debt control effects were limited, and only market distortion increased.
Third, this led to banks' profitability deterioration and competitiveness decline. From banks' perspective, refinancing is an important product that can retain existing customers while attracting new ones. When this was blocked, commercial banks lost customers to internet banks or non-bank financial institutions. Especially, Kakao Bank and Toss Bank gained advantageous positions in customer acquisition by resuming refinancing first. This is also affecting the competitive structure of the entire financial industry.
This incident shows that if side effects aren't thoroughly reviewed during policy making, results different from intentions can occur.
✅ Intensified Interest Rate Competition and Expanded Borrower Benefits
With refinancing resumption, interest rate competition between banks is expected to become active again.
First, interest rate reduction competition to attract quality customers will begin in earnest. When the refinancing market opens, banks must competitively lower interest rates to attract existing borrowers with good credit. Some banks are already offering conditions 0.3-0.5 percentage points lower than existing rates for quality customers. Especially for high earners with annual incomes over 70 million won or large company employees, more dramatic preferential conditions are likely. This is similar to the refinancing boom in 2020, when market interest rates also fell rapidly.
Second, non-face-to-face refinancing will spread along with digital finance growth. Internet banks like Kakao Bank and Toss Bank resumed refinancing first, promoting simple mobile-based procedures. Existing commercial banks are also strengthening non-face-to-face channels in response, so borrowers will be able to more conveniently compare conditions from various banks. Also, with AI-based customized product recommendations and real-time interest rate comparison services increasing, borrowers' negotiating power is expected to strengthen significantly.
Third, mid-rate market activation will expand opportunities for mid-credit borrowers too. Until now, refinancing was mainly a product only quality customers could use. However, with the government recently setting mid-rate loan expansion as a policy goal, products that allow mid-credit borrowers to benefit from refinancing are expected to increase. Refinancing products linked with policy loans like New Hope Seed, or refinancing products for mid-credit borrowers through guarantee agency guarantees are likely to expand.
Ultimately, refinancing market resumption will create a win-win structure providing borrowers with expanded choices and banks with new competitive opportunities.
✅ Future Outlook and Precautions
Let's look at risk factors to watch out for along with the positive effects of refinancing resumption.
First, short-term congestion is expected as refinancing demand concentrates. Refinancing demand suppressed for 3 months is likely to burst out all at once. Especially borrowers with high-interest loans or those feeling variable rate burden are expected to flock in large numbers. During this process, some confusion may occur as banks differ in review standards and processing speed. Also, benefits may concentrate only on quality customers while mid-credit borrowers continue to find refinancing difficult, potentially raising fairness issues.
Second, refinancing effects may be limited during interest rate rising periods. Currently, the Bank of Korea's base rate is maintained at the high level of 3.5%, and there's possibility of additional increases depending on the US Federal Reserve's monetary policy changes. If market interest rates are generally rising, interest savings effects through refinancing may not be significant. Also, there's risk of increased burden if you refinance to variable rates and rates surge, so interest rate outlook must be carefully considered.
Third, long-term household debt management and financial stability must be continuously monitored. While refinancing resumption doesn't directly lead to debt increases, when borrowers' loan movements become active, banks' risk management becomes more important. Especially in unstable real estate market situations, risks from collateral value changes must be closely managed. Also, when the government adjusts future real estate policies or loan regulations, they must more carefully review market impacts to prevent confusion like this from recurring.
While refinancing resumption is positive, borrowers need careful decisions fitting their personal situations, and policy authorities need continuous monitoring.
4️⃣ In Conclusion
Home loan refinancing resumption is a positive change that can ease the interest burden of borrowers who were suppressed by regulations. However, it's not unconditionally advantageous for all borrowers, so careful review fitting individual situations is necessary.
Through this incident, we confirmed that if side effects aren't sufficiently considered during policy making, results different from intentions can occur. While the policy goal of controlling household debt was valid, comprehensively restricting even refinancing was excessive regulation. Actually, while total loan amounts didn't increase, only borrowers' interest saving opportunities were blocked, resulting in decreased policy credibility.
Fortunately, it's encouraging that the government recognized problems and quickly revised the policy. Going forward, to reduce such trial and error, procedures are needed to more actively collect opinions from market participants and closely review side effects during policy establishment.
From borrowers' perspective, they must wisely use this new opportunity that has opened. Rather than simply comparing interest rates, they must comprehensively consider early repayment fees, new loan fees, changes in preferential conditions, etc. Also, they must carefully judge which would be more advantageous between current variable and fixed rates, and what the future interest rate outlook will be.
As competition between banks becomes active, borrowers' choices will expand greatly. Various financial institutions from internet banks to commercial banks to regional banks are expected to competitively offer good conditions. Especially with digital finance development, an environment will be created where refinancing can be easily received non-face-to-face.
Ultimately, this refinancing resumption can be evaluated as a meaningful change that provided borrowers with opportunities to reduce interest burden and reminded policy authorities of the need for more detailed policy design.
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