Rates have risen 1.25 percentage points this year, surpassing bank variable rates

[Getty Images Bank]
[Getty Images Bank]

Sales of the Bogeumjari Loan, a government-backed fixed-rate mortgage, have fallen to their lowest level in more than a year as fixed interest rates continue to climb.

New Bogeumjari Loan sales totaled 1.61 trillion won ($1.17 billion) in July, down 25.4 percent from 2.16 trillion won the previous month, according to the Korea Housing Finance Corporation. It was the lowest monthly figure since June last year, when sales reached 1.57 trillion won.

The Bogeumjari Loan is a long-term, fixed-rate, installment-based mortgage offered by the Korea Housing Finance Corporation. Households with a combined annual income of 70 million won or less can use it to purchase homes valued at 600 million won or less, with loan terms of up to 50 years.

Monthly sales had shrunk to 283.2 billion won in May 2024 before recovering, surpassing 1 trillion won in November of that year and topping 2 trillion won in September last year. Sales peaked at 2.57 trillion won in February — the highest since November 2023's 3.07 trillion won — but began declining in March. A brief rebound in June gave way to a sharp drop in July.

The slowdown is largely attributed to the product losing its rate advantage over bank mortgage loans. Bogeumjari Loan rates are set based on yields on five-year government bonds and the corporation's mortgage-backed securities issuance rates. The Korea Housing Finance Corporation raised rates five times this year — in January (0.25 percentage point), February (0.15 percentage point), April (0.30 percentage point), May (0.25 percentage point) and July (0.30 percentage point) — for a cumulative increase of 1.25 percentage points.

As a result, rates on the "Akim-e Bogeumjari Loan" now range from 4.90 percent per year for a 10-year term to 5.20 percent for a 50-year term. Compared with variable-rate mortgages at the five major banks — KB Kookmin, Shinhan, Hana, Woori and NH Nonghyup — which ranged from 4.38 to 6.46 percent annually as of Friday based on the new COFIX rate, the Bogeumjari Loan's lower bound is more than 0.5 percentage point higher. The minimum rate on the "u-Bogeumjari Loan," applied for through the corporation's website, climbed to 5 percent in July — the highest since July 2012.

The pattern of fixed rates exceeding variable rates has spread across the broader market, as five-year bank bond yields — the benchmark for fixed-rate mortgages — have already priced in expectations of a Bank of Korea rate hike. According to the Bank of Korea, the share of fixed-rate loans among deposit bank mortgages fell to 31.9 percent in July, the lowest since February 2014.

"Loan demand has declined somewhat due to rising rates," a Korea Housing Finance Corporation official said. "Even if the Bogeumjari Loan remains competitive on rates, demand itself can fall when the absolute rate level is high enough to make repayment burdensome."

Meanwhile, under the Aug. 13 real estate policy package, newlywed couples will be eligible for the loan starting in October if either spouse earns 70 million won or less annually, a change that could broaden sales going forward.


won@heraldcorp.com