SEOUL, July 5 (Korea Bizwire) — South Korea’s major insurance companies are posing a challenge to commercial banks by releasing mortgage loans with a maturity of up to 40 years.
Kyobo Life Insurance Co., which is already selling policy-type 40-year mortgage products for youth and newly-wedded couples, is set to launch sales of general-type products.
Starting from Samsung Life Insurance Co. and Samsung Fire & Marine Insurance Co. in May, major insurance companies released a string of 40-year mortgage loan products. Shinhan Life Co. is also set to market such products within the third quarter of this year.
Under the financial authorities’ regulations to stem the growth of household loans, if the current total loan amount exceeds 100 million won (US$77,120), the annual principal and interest cannot exceed 40 percent of annual income.
However, if the maturity date is extended, the amount of annual principal and interest is lowered, resulting in a reduction of the debt service ratio and creating room for more loans.
From a long-term perspective, insurance companies are less competitive than commercial banks in light of loan interest rates.
Instead, the non-banking financial companies, including insurance companies, have a 50 percent debt service ratio (DSR), 10 percentage points higher than that for commercial banks, thereby resulting in a higher loan limit.
In particular, given the hike in commercial banks’ loan interest rates, which narrowed the gap with those offered by insurance companies, the insurance industry expects to be able to attract more loan demand than before.
J. S. Shin (email@example.com)