As loan interest rates show signs of rising, the’reducing the risk of rising interest rates’ loan products that have been neglected so far are attracting attention.
It was launched two years ago led by the financial authorities, but the execution performance was insignificant as the low interest rate trend continued ever since, but the financial authorities are considering ways to reactivate it due to concerns about rising interest rates.
In March 2019, the financial authorities introduced a mortgage loan (main charge) with 15 commercial banks to fix monthly payments or limit the extent of interest rate rise.
The’Monthly Repayment Fixed Type’ main charge is to reduce the principal repayment amount to maintain the monthly repayment amount and settle the remaining principal when the interest repayment amount increases as the loan interest rate rises.
The fixed period for monthly payments is 10 years. The interest rate is added 0.2 to 0.3%p to the variable rate, taking into account the risk burden of the bank. Homeowners with a combined income of 70 million won or less and a market price of 600 million won or less can receive a preferential interest rate of 0.1%p.
‘Interest rate cap’ is a product that limits the maximum rate of increase in interest rates to within 2 percentage points (p) over the next five years and within 1 percentage points per year. It is a type of adding a special agreement to an existing loan rather than a new subscription. The interest rate is also 0.15~0.2%p added to the existing interest rate, taking into account the risk of banking.
At the time, the financial authorities preemptively devised to reduce the burden of repayment by borrowers, as they judged that the overall market interest rate could rise in the future due to the continued interest rate hike in the United States in 2018.
However, after the release, interest rates declined and virtually became ineffective. As the Bank of Korea lowered its benchmark interest rate to an all-time low of 0.5% per year in the aftermath of Corona 19 last year, there wasn’t much reason to worry about the risk of an interest rate hike.
According to the financial sector on the 28th, as of the end of last month, the fixed monthly repayment amount handled by commercial banks was 27 billion won (350 cases), and the interest rate capped main charge was 430 million won (6 cases). Among them, there was not one case of the interest rate upper-limit meeting for each bank, so only the name was maintained. Some banks have also stopped selling.
An official from a commercial bank explained, “It was a product that started with the good intention to reduce the burden of borrowers, but it was released at a timing when the market interest rate moved backwards, so consumers did not have to sign up.”
Now things have changed. As interest rates at home and abroad rise, there are voices of concern from the financial authorities. Financial Supervisory Commissioner Yoon Seok-heon also mentioned on the 23rd that it is necessary to induce the launch of various loan products to mitigate the risk of rising interest rates.
Financial authorities are considering reorganizing and revitalizing interest rate reduction products in preparation for the risk of rising interest rates.
Financial authorities believe that adjusting product conditions to suit market conditions will increase consumer interest and help reduce the burden on lenders. Reinforcing product promotion is one of the review plans.
An official from the Financial Supervisory Service said, “Because I’ve been so used to low interest rates, the purpose of preparing for the risk of an interest rate hike is to be prepared.” .