GOVT’S LONG TERM MORTGAGE PROJECT

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Taking out loans to purchase homes has become difficult due to government measures aimed at suppressing real estate speculation. Especially for people in their 20s with modest income, terms of loan extensions can be more difficult, making home ownership nearly impossible. The government will carry out a super long term mortgage loan trial project where young adults can pay back loans over a maximum 40 year period.

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The main purpose of the project is to lower the threshold on bank loans for young citizens. Authorities will seek ways to flexibly apply the debt service ratio(DSR) for young adults. This could include, placing greater emphasis on their anticipated future income. In addition to less strict conditions for receiving loans, the repayment period will also be extended. A new mortgage loan product that spans a maximum 40 years will be rolled out to help people own homes after paying sums similar to monthly rent for that amount of years. For instance, currently, a mortgage loan of 400 million won needs to be paid back over 30 years at the longest. This amounts to around 2 million won a month but if the period is extended to 40 years, monthly payment will be 280-thousand won less.

[Soundbite] EUN SUNG-SOO(CHAIRMAN, FINANCIAL SERVICES COMMISSION) : "Despite being a trial run, we will seek to build on the project to ensure housing stability for young people so they can buy homes with their current income."

The key to determining the success of the new project will be how sophisticated the loan product will be designed. Due to the long payment period, mortgage value can fluctuate in line with changes to home prices which will require further estimations and calculations. Other variables include the need to move to a larger home if the family grows and also having to move for children’s education. Financial authorities are set to begin the trial program targeting young adults and newlyweds from the latter half of this year.