2030 'Yeongkkeol-jok': Housing Loan Repayment Strategies?

The Bank of Korea recently raised its benchmark interest rate twice, bringing the current rate to approximately 3%. This increase directly impacted commercial bank housing loan interest rates. Consequently, the upper limit for housing loan rates has already exceeded 7%, now closely approaching 8%.

There are three main types of housing loan repayment methods. The first is the equal principal and interest repayment method, and the second is the equal principal installment repayment method. Lastly, there is the gradually increasing installment repayment method.

This method is characterized by a consistent monthly payment from start to finish. However, in the early stages of the loan, interest constitutes a larger proportion, with the principal repayment portion gradually increasing over time. It is one of the most common methods chosen for commercial bank loans.

Equal principal installment repayment involves paying the same amount of principal each month and interest on the remaining loan balance. This method has higher monthly payments initially, but as the loan balance decreases, the interest burden gradually lessens, leading to decreasing monthly payments. It is known for having the highest initial monthly payments among all repayment methods.

Among the three methods, this method incurs the highest total interest burden over the loan term because it has the slowest principal repayment structure.

Conversely, the gradually increasing method incurs the largest total interest over the loan term. This is because the gradually increasing method repays the principal most slowly, leading to more interest accumulating on the outstanding loan balance. For example, assuming a 300 million won loan with a 30-year term and a 5% interest rate, there will be differences in the total interest for each method.

The loan repayment method should be chosen differently based on an individual's income pattern and repayment capacity. Equal principal and interest repayment is advantageous for people with stable incomes due to the fixed monthly expenditure. Equal principal repayment has a high initial burden but a smaller total interest, making it suitable for high-income earners or those nearing retirement. Gradually increasing repayment has the lowest initial burden, making it beneficial for those in their 20s and 30s who anticipate future income growth.

Not everyone can choose the gradually increasing method for policy-backed loans. Currently, there is a condition that only loan applicants under 40 years old can select this method. Additionally, it cannot be chosen for 50-year term products.

This can lead to a real reduction in debt, considering the depreciation of currency value. The gradually increasing method works by easing the burden of principal and interest over time.

To successfully refinance a housing loan after 5 years, the current home must be liquid, meaning it can be sold when desired. Choosing a home in a verified location from the start makes refinancing easier. Additionally, one must thoroughly consider the possibility of income reduction due to life changes such as childbirth, leave of absence, or job change. Most importantly, a loan repayment method, once chosen, cannot be changed midway, requiring careful decision-making.