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Current Trends and Services in Housing Loan Refinancing

GOOVER DAILY REPORT June 27, 2024
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TABLE OF CONTENTS

  1. Summary
  2. Introduction of Loan Refinancing Services
  3. User Experience and Savings
  4. Comparison of Refinancing Platforms
  5. Policy Improvements and Future Roadmap
  6. Conclusion

1. Summary

  • The report titled 'Current Trends and Services in Housing Loan Refinancing' assesses the current state and developments in housing loan refinancing within South Korea. It details recent advancements such as new refinancing services for apartments, villas, and officetels, alongside the creation of user-friendly online platforms. Notably, it discusses the significant savings accrued by borrowers and the efforts of financial institutions, like the Financial Services Commission (FSC), to reduce interest burdens and enhance competition. These developments include the integration of real-time property valuation services by Kookmin Bank and in-person assistance for older borrowers by Woori Bank.

2. Introduction of Loan Refinancing Services

  • 2-1. Launch of New Refinancing Services in South Korea

  • The introduction of loan refinancing services in South Korea has seen significant growth. According to the Financial Services Commission, as of September, refinancing services will become available for apartments with fewer than 50 households, as well as villas. This expansion is expected to increase the number of borrowers who can utilize these services. Currently, approximately 21,000 borrowers have benefited from moving their loans, saving an average of 1.52 percentage points in interest rates annually.

  • 2-2. Expansion of Loan Types and Eligible Properties

  • There has been a notable expansion in the types of loans and eligible properties for refinancing. Starting September, the scope will include small apartments, villas, and residential officetels. Previously, refinancing services were limited to larger apartment complexes, but the inclusion of these smaller and varied property types will open up opportunities for more homeowners to benefit from reduced interest rates.

  • 2-3. Government Initiatives and Financial Authorities' Role

  • The government and financial authorities have played a crucial role in the expansion and enhancement of loan refinancing services. The Financial Services Commission has been actively gathering feedback from the financial sector and users to improve the services. Notable initiatives include the introduction of real-time property valuation services by Kookmin Bank and the implementation of in-person assistance for older borrowers by Woori Bank. Additionally, the Housing and Urban Guarantee Corporation (HUG) is working on reducing the burden of guarantee fees for jeonse loan refinancing.

3. User Experience and Savings

  • 3-1. User participation in loan switching services

  • As of June 17, 2024, the Korean government's loan switching services have been utilized by over 214,000 borrowers, resulting in the transfer of loans worth approximately 10.9 trillion KRW. This service allows users to refinance their existing housing loans to benefit from lower interest rates.

  • 3-2. Average interest rate reduction and annual savings

  • On average, users have managed to lower their interest rates by approximately 1.52 percentage points. This reduction in interest rates has led to annual savings of about 1.64 million KRW per borrower. The cumulative savings underscore the financial benefits that the loan switching services offer to the users.

  • 3-3. Specific examples and success stories

  • The data reveals different levels of savings based on the type of loan. For instance, home equity loan borrowers, who started using the service from January 9, 2024, have seen significant reductions. About 26,636 borrowers moved loans worth 4.89 trillion KRW, achieving an average interest rate reduction of 1.49 percentage points and annual savings of around 2.73 million KRW per borrower. Meanwhile, renters with jeonse loans, who have been using the service since January 31, 2024, have experienced a reduction of 1.42 percentage points in interest rates, resulting in annual savings of about 2.38 million KRW per borrower.

4. Comparison of Refinancing Platforms

  • 4-1. Overview of major refinancing platforms like NaverPay, Finda

  • In South Korea, major refinancing platforms such as NaverPay and Finda have been pivotal in reshaping the housing loan refinancing landscape. These platforms offer a range of services that enable consumers to compare different financial institutions and refinancing terms seamlessly. NaverPay, for instance, plans to enhance its platform by improving visibility of participating financial institutions, ensuring users can compare loan products from their preferred lenders.

  • 4-2. Comparison of services offered and ease of use

  • NaverPay and Finda have distinct strengths in their service offerings. NaverPay is working on ensuring that users can clearly see which financial institutions are available on its platform, making it easier for consumers to compare loan conditions. Finda, on the other hand, focuses on providing comprehensive comparisons and recommendations for various loan products. Both platforms are designed to be user-friendly, with intuitive interfaces that facilitate easy navigation through complex financial data. The services offered by these platforms include real-time interest rate updates and easy access to detailed loan comparisons.

  • 4-3. Success stories and statistical outcomes

  • The impact of these platforms has been significant. According to data, over 214,000 users have utilized refinancing services, transferring approximately KRW 10.9 trillion in loans. This widespread adoption has resulted in significant interest savings for borrowers, with average interest rates dropping by approximately 1.52 percentage points, translating to an annual interest saving of about KRW 1.64 million per person. For instance, in the segment of unsecured loans, around 176,723 borrowers have refinanced a cumulative amount of KRW 4.1764 trillion, achieving an average interest rate reduction of 1.57 percentage points and saving KRW 580,000 annually per borrower.

5. Policy Improvements and Future Roadmap

  • 5-1. Recent and Upcoming Policy Changes

  • As of September 2024, refinancing services will be extended to include apartments with fewer than 50 units as well as villas and residential officetels. This expansion will enable more borrowers to take advantage of reduced interest rates. Additionally, notable improvements have been made to make the refinancing process more accessible. For example, KB Kookmin Bank will start providing real-time market prices (KB시세) for smaller apartments and villas. Woori Bank plans to launch a 'visiting refinancing service' by October, aimed at assisting customers aged 65 and older by offering both face-to-face and non-face-to-face consultation sessions. To ease the financial burden on borrowers, the Korea Housing & Urban Guarantee Corporation (HUG) is working on plans to reduce the fee for its Jeonse deposit return guarantee and to refund any excess amounts paid. Furthermore, Shinhan Bank has enhanced its app to provide borrowers with specific details about their Debt Service Ratio (DSR) and offered guidance on reducing their DSR to facilitate refinancing.

  • 5-2. Impact of These Policies on Borrowers

  • The introduction of these policies has had a significant positive impact on borrowers. As of September, about 214,000 borrowers have benefited from refinancing, moving ¥10.9 trillion in loans. These changes have led to an average interest rate reduction of 1.52 percentage points, saving each borrower approximately ¥1.64 million annually. Refinancing specifically for credit loans saw 176,723 borrowers shift ¥4.1764 trillion in loans, with an average interest reduction of 1.57 percentage points, saving about ¥580,000 per borrower each year. Those refinancing mortgage loans (주담대) and Jeonse loans saw similar benefits, with a reduction of 1.49 percentage points in the mortgage sector and savings of ¥2.73 million per borrower annually, while Jeonse loan borrowers saved ¥2.38 million annually with a rate reduction of 1.42 percentage points.

  • 5-3. Feedback from Users and Financial Institutions

  • User feedback has been pivotal in driving these enhancements. The Financial Services Commission (FSC) has continuously gathered opinions from financial industries and users to identify and implement improvement tasks. For instance, the difficulties faced by borrowers in using non-face-to-face refinancing services have led to the creation of alternative solutions such as on-site advisory services. Furthermore, the improvement of services like the refinement of financial applications to display more detailed DSR information and the inclusion of more financial companies in loan comparison platforms have been directly influenced by user feedback. Financial institutions have collaborated closely with the government to fine-tune the policy changes, ensuring smooth implementation and maximizing the utility of these services for borrowers.

6. Conclusion

  • The housing loan refinancing landscape in South Korea has experienced substantial evolution, driven by government interventions and innovations from financial institutions. Key platforms such as NaverPay and Finda are instrumental in this progression, allowing users to achieve significant savings by offering comprehensive loan comparisons at lower rates. The Financial Services Commission (FSC) and the Housing Urban Guarantee Corporation (HUG) have played pivotal roles in policy and implementation, resulting in meaningful financial relief for borrowers. While the advancements are commendable, ongoing improvements are essential to fully realize the potential of these services. Addressing limitations and continuous refining of policies will be vital, ensuring that future strategic expansions continue to benefit all stakeholders. The involvement of financial institutions in enhancing loan applications and adding more comparison platforms will be crucial in this ongoing development.

7. Glossary

  • 7-1. NaverPay [Platform]

  • NaverPay offers a housing loan comparison and refinancing service that allows users to seamlessly switch loans at lower interest rates. Partnered with major banks, it provides various options and has proven to reduce annual interest costs significantly.

  • 7-2. Finda [Platform]

  • Finda is a loan comparison app that provides a quick and comprehensive overview of over 300 products from 70 financial institutions. It supports easy refinancing and showcases significant interest and cost savings for users.

  • 7-3. Financial Services Commission (FSC) [Government Body]

  • The Financial Services Commission oversees financial regulations and initiatives in South Korea, including the expansion and improvement of housing loan refinancing services aimed at making them more accessible and efficient for borrowers.

  • 7-4. Housing Urban Guarantee Corporation (HUG) [Organization]

  • HUG plays a role in easing the financial burden of returning lease deposits and provides guarantees to enhance the security of housing finance transactions, including refinancing services.

8. Source Documents