Floating Mortgage (Geunjeodang)
Overview
A floating mortgage (Geunjeodang, 根抵當) is a type of mortgage under civil law, referring to a mortgage established in advance to secure unspecified claims that may arise in the future. While a general mortgage secures specific claims, a floating mortgage differs in that it comprehensively secures claims arising from continuous transactional relationships. It is primarily used in long-term and repetitive financial transactions such as bank loans, credit cards, and credit purchases. As long as the maximum amount of claims is set, the collateral effect is maintained even if the actual claim amount fluctuates.
Main Content
1. Legal Nature of Floating Mortgage
A floating mortgage is stipulated in Article 357 of the Civil Act, which states that "a floating mortgagee may establish a mortgage to secure unspecified multiple claims arising from a continuous transactional relationship with the debtor." Unlike a general mortgage, it is established while the secured claims are not yet fixed, and only the maximum amount of claims is recorded in the registry. A floating mortgage has the practical advantage of not requiring separate registration for each claim that arises.
2. Procedure for Establishing a Floating Mortgage
The establishment of a floating mortgage proceeds similarly to a general mortgage. The parties enter into a contract for establishing a floating mortgage and apply for registration of the floating mortgage at the real estate registry office. The application must include the maximum amount of claims, the debtor, the mortgagee, and the description of the collateral real estate. The maximum amount of claims is typically set at 110% to 130% of the expected actual claim amount, which includes interest, delay damages, and enforcement costs.
3. Effect of a Floating Mortgage
A floating mortgage has a collateral effect on all claims arising after its establishment. However, it does not extend to amounts exceeding the maximum claim amount. In the event of default, the mortgagee can receive preferential repayment through auction, and the distribution priority is the same as that of a general mortgage. Even if the claims are extinguished, the floating mortgage continues to exist unless the parties terminate it, and it continues to secure new claims as they arise.
4. Extinguishment and Cancellation of a Floating Mortgage
A floating mortgage is extinguished in the following cases: (1) when the secured claims are fixed and extinguished, (2) when the mortgagee agrees to cancellation, (3) when the real estate is sold through auction, and (4) upon completion of prescription. The cancellation registration of a floating mortgage is applied for by attaching documents proving that the entire maximum claim amount has been extinguished. In practice, when transactions end after the establishment of a floating mortgage, it is common to remove the burden on the real estate through cancellation registration.
5. Comparison between Floating Mortgage and General Mortgage
| Category | Floating Mortgage | General Mortgage |
|----------|------------------|------------------|
| Secured Claims | Unspecified, future claims | Specified, existing claims |
| Maximum Claim Amount | Required | Not required |
| Timing of Establishment | Before claims arise | After claims arise |
| Transaction Type | Continuous transactions | One-time transactions |
| Practical Use | Bank loans, cards | Home purchase loans |
6. Advantages and Disadvantages of Floating Mortgage
Advantages: (1) No need for separate collateral setup in repetitive transactions, (2) Flexible financing within the maximum claim amount, (3) Reduced additional registration costs when claims fluctuate.
Disadvantages: (1) Over-collateralization issues if the maximum claim amount exceeds actual claims, (2) Restrictions on the debtor providing other collateral after the floating mortgage is established, (3) Cancellation procedures can be complex.
Recent Trends
As of 2024–2025, the floating mortgage system is undergoing several significant changes due to the evolving digital financial environment. First, the introduction of an electronic registration system has simplified the establishment and cancellation procedures for floating mortgages online. Through the Supreme Court's registration information system, applications for floating mortgage registration can be made electronically, reducing processing time. Second, due to strengthened financial regulations, the criteria for calculating the maximum claim amount when establishing a floating mortgage have become stricter. Since 2024, the Financial Supervisory Service has implemented guidelines for banks limiting the ratio of the maximum amount to the actual claim amount to 120% or less when setting up a floating mortgage. Third, due to the real estate market downturn and interest rate hikes, the number of floating mortgage executions (auctions) is on the rise. In the first half of 2024, the number of court auctions nationwide increased by 15% compared to the same period the previous year, with auctions based on floating mortgages accounting for a significant portion. Fourth, attempts are being made to introduce the concept of a floating mortgage in virtual asset (cryptocurrency) transactions. Some virtual asset exchanges are developing smart contract-based systems similar to floating mortgages to secure user transaction collateral. Fifth, the revised Civil Act, scheduled to take effect in 2025, will clarify the scope of secured claims under a floating mortgage and introduce a system for reviewing the appropriateness of the maximum claim amount. This is a measure to prevent debtor harm from over-collateralization.
Related Topics
- [[Mortgage (Jeodangkwon)]]
- [[Real Estate Registration]]
- [[Maximum Claim Amount]]
- [[Auction]]
- [[Civil Act]]