South Korea's top financial regulator said Thursday that local lenders will start providing some 20 trillion won ($18.2 billion) worth of long-term fixed-rate loans next month to households seeking to refinance their mortgage lending at cheaper rates as part of an effort to improve the quality of ballooning household debts that could pose a threat to the economy.
  

The Financial Services Commission said the new loans will help household borrowers convert short-term floating interest rate loans into long-term and fixed rate loans, so that they can steadily repay the loans over a long term.
  

Such instruments will start being sold by local lenders from March 24 with an interest rate a 2-percent level, it added. The country's key policy rate currently stands at a record low of 2 percent.
  

The Korea Housing Finance Corp. will issue mortgage-backed securities to fund the new loans.
  

The size and soundness of household borrowing has come under serious question as the amount has ballooned while the country's economy has yet to show definitive signs of picking up. A fourth-quarter tally from the Bank of Korea released on Thursday said household credit, which includes credit purchases and loans from financial institutions, marked its sharpest quarterly gain since the central bank started keeping data in the fourth quarter of 2004.
  

Outstanding household loans reached 1,029.3 trillion won at the end of December, spiking 27.6 trillion won from the previous quarter and accounting for most of the quarterly increase in household credit. The figure passed the 1,000 trillion won mark for the first time in the third quarter last year.
  

Of total family loans extended by banks, mortgage-backed loans accounted for 70 percent as of end-December. 
  

The pace of gains in household credit has sped up since August, when the government eased rules on mortgage loans to stimulate the sagging property market. The central bank chipped in by lowering its policy rate twice in the second half of the year.
  

The prevalent view of policymakers is that while the loans are high in numbers, they have not yet hit a dangerous level.
  

Experts, however, say they have and that stopgap measures would not solve the problem.
  

"The authorities acknowledge that household debt is risky and is a time bomb for the South Korean economy," Park Chang-kyun, a professor at Chung-ang University, said. "But it's just a political metaphor to say that household debt can be controlled."
  

"The government has lifted loan-related regulations and induced people to get more loans beyond their ability to repay. It should have taken actions first to prevent excessive credit," said Yeom Myung-bae, professor at Chungnam National University. "It's more urgent to come up with effective measures to force borrowers to repay the debts."  
  

The FSC said that the new loan schemes are aimed at changing the structure of mortgage loans and placing the household debts under control.
  

"We are supporting households to deal with a possible rate hike in the future at home and abroad, and build an environment for them to pay off debts in the end," the FSC said.
  

Most of the home-backed bank loans are non-amortized loans, requiring debtors to pay back the lump sum principal upon maturity. Such loans are heavily susceptible to changing interest rates.
  

Earlier, FSC Chairman Shin Je-yoon said restructuring of household debt is a top priority for financial stability in 2015, and he will do his best to improve the quality of household debts. (Yonhap)