KHFC Lowers Prepayment Penalty for Bogeumjari Loan to 1/3 on Average

- Apply the sliding method with a 1.5% ceiling for up to three years beginning today -

- The same effect as reducing interest rates up to 1%p -

The Korea Housing Finance Corporation (KHFC, CEO Seo Jong-dae) announced on September 24 that the prepayment penalty for Bogeumjari loan will be changed to the three-year sliding method. The new prepayment penalty system goes into effect as of September 24 after prior notice from September 14 through 21. Key features include a shift from the step method with a 2% ceiling for up to three years to the sliding method with a 1.5% ceiling for up to three years, and the exemption of the prepayment penalty will be extended to include the death of a borrower and natural disasters.

As a result, the prepayment penalty will be lowered by 0.5%p~1.5%p depending on the lapse of a loan period and ease the financing cost on low-income households. In addition, customers will enjoy an effective reduction in interest rates of about 0.33~1%p as the prepayment penalty is lowered. For instance, if a borrower pays back an outstanding loan of KRW 100 million two years after taking out the loan, the prepayment penalty will be about KRW 1 million (interest saving effect: 0.50%p) lower under the new system compared to the previous system.

The new system is applied only if Bogeumjari loans are taken out after the date of enforcement and not applied retroactively to current Bogeumjari loan borrowers. It cannot be applied retroactively to the current borrowers because the fluctuation risk of the value of MBS that was issued using Begeumjari loans as its underlying assets and sold to investors is high and legal counsel advised against applying the new system retroactively as doing so would violate fiduciary duties to MBS investors.

“When Bogeumjari loan borrowers pay back the loan early, their penalty burden will be eased. We expect it will be more convenient for low-income households that use Bogeumjari loans and help alleviate their burden of financing cost,” said an official at KHFC.