Financial authorities said Thursday that local lenders would launch a massive program to cut the cost of loans for borrowers next month as a way to curb rising household debts.

Under the new loan-transfer program, the money will go to help households seeking to refinance their mortgage lending at cheaper rates.

The Financial Services Commission said the debt-refinancing program will start on March 24 and run until the sales reaches 20 trillion won.

The measure came amid reports that the nation’s household credit hit a record high in the fourth quarter.

The program allows borrowers of the floating rate mortgage-backed loans to transfer to the cheaper loans of the same bank at a fixed, 2 percent-range interest rate.

FSC officials said the program would be offered only to those whose fixed rate mortgage-backed loan is 500 million won or less. Borrowers whose mortgaged property values at 900 million won or less are also eligible. The applicants should be free of delinquency records for the past six months.

The program is designed to help faithful “interest payers,” swamped in monthly interest payments while their principal remains unpaid. The transfer program is expected to reduce the total interest due and remain guarded against the future rise of the interest rate, on top of the year-end tax return benefits.

FSC senior official Kim Yong-beom estimated that the country’s total mortgage-backed loans reached 350 trillion won, two-thirds of which are eligible for the loan transfer program.

While the program offers a favorable deal for the debtors, the local banks are disgruntled about the upcoming “loss.”

According to data, household loans extended by lenders shot up by 17.1 trillion won in the fourth quarter, accounting for nearly half of last year’s 38.5 trillion won gain in such loans, Yonhap said.

The gain in household loans by banks tripled in 2014 to 38.5 trillion won, compared to 13.9 trillion won in the previous year, according to the report.

To fund Korea Housing Finance Corp. with 20 trillion won for the loan transfer program, the FSC goaded local banks to purchasing government-issued mortgage-backed securities, or MBS. In some banks, the FSC allegedly pressured them to buy MBS equivalent to about 70 percent of the 20 trillion won program.

About the dispute, Kim said in the briefing that the government did not plan to force the banks to sacrifice, although he admitted that the issue could lead to controversy.

Purchasing the MBS may improve their financial liquidity while keeping the old customers, Kim said, adding that the banks that buy MBS will be given lower contribution quotas starting next year.

“It is essential that Korea Housing Finance Corp. gets support in funding (for the loan transfer program). Banks seek profit, but at the same time, they are obliged to contribute to the financial system in which they operate,” he said.

The FSC views the country’s household debt, which stands at 1,100 trillion won as of end of 2014, to be still growing “at a manageable pace.”

By Chung Joo-won (joowonc@heraldcorp.com)