DSR and LTV: The Two Ratios That Set Loan Limits in Korea

The question each ratio asks

In Korea, the ratios that appear in lending rules, LTV, DTI and DSR, sound alike but ask different questions. LTV looks at how much you borrow relative to the value of the home pledged as collateral, leaving a margin so the lender can recover principal even if prices fall. DTI and DSR look at income: if repayments are too large for what you earn each year, household finances can collapse into arrears regardless of the home's value. DTI adds mortgage principal and interest to only the interest on other loans, while DSR adds the full principal and interest of every loan, including credit loans and car installments. DSR is therefore the broadest and strictest test, and today it is the ratio that actually sets the limit in most household loan reviews. Remembering each ratio as a question makes bank explanations much easier to follow.

• LTV: are you borrowing too much against the collateral?
• DTI: is the mortgage burden too large for your income?
• DSR: is the burden of all loans too large for your income?

How LTV is calculated

LTV is the loan amount divided by the home's value. That value is not the price in the sale contract but the collateral value the lender recognises, usually an appraisal or an established market price according to the lender's rules. For example, if the collateral value is 500 million won and the applicable cap is assumed to be 60 percent, the LTV-based limit is at most 300 million won in theory (the ratio is an assumption for illustration). In practice more is deducted. Any senior loan already registered is subtracted, and if the home has or may have tenants, an amount for small-deposit tenants' priority claims is deducted in advance, known in Korea as the room deduction. The cap itself depends on the property's location, whether it is in a regulated area, how many homes you own and whether it is a first purchase, and it changes frequently with policy. So the LTV limit for homes at the same price can differ considerably by person and region.

How DTI and DSR are calculated

Both ratios divide what you must repay in a year by annual income; the difference is the numerator. DTI takes the annual principal and interest on the new mortgage and adds only the annual interest on other loans. DSR adds the annual principal and interest on every loan: mortgage, credit loans, car installments, card loans and so on. For example, with annual income of 50 million won and a 40 percent DSR cap, the limit is set so that annual repayments on all loans do not exceed 20 million won, about 1.67 million won a month. If you already repay 500,000 won a month on other loans, the room for a new loan shrinks to about 1.17 million won. Converting that monthly amount back into principal at a given rate and term gives the income-based limit. For the same monthly payment, a longer term or lower rate converts into a larger principal limit.

• DTI = (annual mortgage repayments + annual interest on other loans) ÷ annual income
• DSR = annual principal and interest on all loans ÷ annual income
• Example: 50 million won income × 40% = up to 20 million won a year in repayments

What borrower-level DSR means

Borrower-level DSR applies the cap to each individual borrower rather than to a lender's portfolio average. Currently banks apply 40 percent and non-bank lenders such as savings banks, card companies and insurers apply 50 percent (as of 2025). It covers borrowers whose household debt exceeds a certain size, and some policy loans for low-income households or small loans are excluded or treated differently. A higher non-bank cap does not make non-bank lenders more favourable: their rates are usually higher, so the same amount means larger repayments, and borrowing from them can affect credit evaluation. The scope, the excluded loans and the ratios have been adjusted over time, so check the criteria in force when you apply through Financial Services Commission announcements and bank notices. The regulatory ratio is only a ceiling; a lender's own review can reduce the limit further.

What stress DSR adds

Stress DSR reflects the chance that rates will rise after you borrow by adding a set rate to the actual rate, only for the purpose of calculating DSR. You do not pay more interest; the hypothetical rate used for the limit rises, so the limit falls. The add-on is larger where rate risk is larger: it applies most to variable-rate loans, less to hybrid or periodic types depending on the fixed period, and little or not at all to loans fixed until maturity. The scheme has been expanded in stages since 2024, and the size of the add-on and the loans covered have changed at each stage. As a result, the same income and amount can produce different limits depending on the rate type you choose. Check the current stage and figures with the Financial Services Commission and official bank notices.

How income is recognised

The annual income in DSR and DTI is not what you think you earn but what documents confirm. Salaried workers usually prove it with a withholding tax receipt or income certificate, and business owners with income reported for comprehensive income tax. If you under-reported for tax, recognised income will be low even if actual earnings are high. Where proof is difficult, income may be estimated from health insurance or national pension contributions, but this is often counted more conservatively than documented income. Limits can come in low when income records are incomplete, for example just after changing jobs or during parental leave. Whether spouses' incomes can be combined depends on the loan type and product rules. Checking your income documents for the past one or two years before a consultation narrows the gap between the limit you are told and the actual review result.

Common misunderstandings

People meeting these ratios for the first time often read them backwards. A 40 percent DSR does not mean you can borrow 40 percent of your income; it means annual principal and interest must not exceed 40 percent of income. With a long term and low rate, the principal limit can be far larger than annual income. Many also assume the LTV limit will be granted, but the actual limit is the smaller of the LTV and DSR results, so with insufficient income it falls well short of the LTV limit. An unused overdraft line seems harmless, yet credit lines are generally counted in DSR by the agreed limit, not the amount drawn. On the other hand, it is true that lengthening the term reduces annual repayments and lowers DSR, but total interest rises accordingly. Understanding what goes into the numerator and denominator reduces misunderstandings more than memorising a single figure.

• Thinking a 40% DSR means borrowing up to 40% of income
• Thinking the LTV limit will naturally be granted
• Thinking an unused overdraft line does not affect the limit
• A longer term lowers DSR but raises total interest

Checks to estimate your limit in advance

Estimating your limit before a consultation lets you plan the contract schedule far more safely. First, set out your documented annual income and list every current loan's balance, rate, remaining term and repayment method; for an overdraft line, record the limit rather than the amount used. Next, add up the annual repayments on existing loans and calculate their share of income to see the room left for a new loan. Converting that room into principal at your expected rate and term gives the income-based limit. If there is collateral, multiply its value by the expected cap and subtract senior loans and the room deduction to get the collateral-based limit. The smaller of the two is your rough limit. A DSR calculator speeds this up, but stress rates and product-specific methods are finalised in the lender's review.

• 1. Set out documented annual income
• 2. List all existing loans: balance, rate, term, method
• 3. Calculate existing annual repayments ÷ annual income
• 4. Convert the remaining room into principal (income-based limit)
• 5. Collateral value × cap − senior loans and room deduction (collateral-based limit)
• 6. Plan around the smaller of the two

Situations people ask about most

The most common question is why the limit is so low when the home's value is ample. Usually repayments relative to income filled up first and DSR bound the limit. Paying down an existing credit loan or installment first frees room for the new loan, and lengthening the term or choosing a rate type with a longer fixed period can reduce the stress DSR effect and raise the limit. The second concerns overdraft lines: if you have an unused one, reducing or closing it alone can create DSR room. The third is combining a dual-income couple's earnings. Some products allow a spouse's income to be added, but the spouse's loans are then usually counted too, so combining is not always better. Whatever the case, ask the bank whether the income test or the collateral test set your limit.

• Home value ample but limit low: check whether the income test bound first
• Unused overdraft line: reduce or close it to free room
• Combining a couple's income: check whether the spouse's loans count too

Limits and disclaimer

This guide is general information explaining the logic of Korean lending rules; it does not confirm any individual's eligibility or limit. LTV caps, the scope and exclusions of borrower-level DSR, the size and stage of stress rates and the methods of recognising income change frequently with government policy and lender criteria. Figures such as 500 million won and 60 percent are assumptions to show the calculation, and ratios stated as of 2025 may since have changed. Products, terms and regulations differ by company and over time, so before signing, check the product description and terms and confirm the latest criteria with the Financial Services Commission, the Financial Supervisory Service and your bank. Being offered a limit does not mean you must borrow all of it; it is safer to set the actual amount by a repayment plan that leaves room for living costs and an emergency fund.