In the pursuit of homeownership, especially for young adults and newlyweds with limited savings, exploring government-backed loan programs should be the initial step. With interest rates often lower than those of traditional banks, utilizing these loan options during times of rising interest rates can offer favorable borrowing conditions. Two prominent options are the "Support Pillar Loan" (버팀목대출) and the "Step Stone Loan" (디딤돌대출). As of October 4, 2022, there have been changes to the maximum borrowing limits, making these programs even more appealing. Whether you're planning to buy a home or are already using these loan products, being informed about them is essential.
Support Pillar Loan vs. Step Stone Loan - Understanding the Difference
The type of loan you can obtain depends on your purpose for borrowing. If you are seeking assistance with a security deposit for a rental home, the Support Pillar Loan is suitable. On the other hand, if you're planning to purchase your own property and need additional funds, you should consider the Step Stone Loan.
Enhanced Limits for Support Pillar Loan for Home Purchase
For young individuals and newlyweds, the borrowing limit for the Support Pillar Loan has been raised:
- Young individuals: The borrowing limit has increased from KRW 70 million to KRW 200 million for purchasing homes with security deposits of up to KRW 300 million. The interest rates range from 1.5% to 2.1% based on income. Eligibility requires an annual income of less than KRW 50 million and total assets after debt deduction of less than KRW 325 million (as of 2023).
- Newlyweds: Newlywed couples can borrow up to KRW 300 million for homes with security deposits of up to KRW 400 million (in the Seoul metropolitan area) or up to KRW 300 million (outside the Seoul metropolitan area). To be eligible, couples must be married for less than seven years or have marriage plans within three months. The combined annual income of the couple must be less than KRW 60 million. Interest rates range from 1.8% to 2.4% (as of 2023).
Consider Switching to Support Pillar Loan
If you meet the conditions for Support Pillar Loan but are currently under higher interest loans elsewhere, you can explore the possibility of switching to this program with banks like Woori, KB Kookmin, IBK, Nonghyup, and Shinhan Bank.
Advantages of Refinancing Step Stone Loan
The Step Stone Loan is designed for individuals aged 30 and above who are unmarried or newlyweds aiming to purchase their first home. The interest rates range from 2.15% to 3%, and the loan term can be as long as 30 years. The program has been enhanced in two ways:
1. Fixed Interest Rate Option: Starting October 21, 2022, borrowers have the opportunity to switch their variable interest rate to a fixed interest rate for a period of six months.
2. Increased Loan Limit for Marriage: Marriage applicants meeting the income requirements (KRW 70 million or less) can increase their loan limit without repaying the existing loan.
Making the Right Choice for Your Situation
With interest rates on the rise, choosing between fixed and variable interest rates when applying for a loan is essential. Additionally, individuals planning to marry can benefit from increased loan limits without repayment. To make the most suitable decision, evaluate your financial situation and select the most advantageous options available.