Jeonse to Monthly Rent Conversion: the Legal Cap and the Formula

What the conversion rate is

When part of a deposit becomes monthly rent, or rent becomes deposit, one yearly rate links the two amounts. In Korea it is called the jeonwolse conversion rate.

For example, if you turn a 50 million won deposit into rent at 5% a year, the rent is about 208,000 won a month.

What the legal cap is

Article 7-2 of the Housing Lease Protection Act says that when all or part of a deposit becomes monthly rent, the rent cannot go above a set rate.

The rate is the lower of two. One is 10.00% a year, set by the enforcement decree. The other is the Bank of Korea base rate plus 2.00%.

The base rate is 3.00% now, so 3.00 + 2.00 = 5.00% is lower than 10.00%. The legal cap is therefore 5.00% a year.

When the base rate moves, the cap moves with it. Once the base rate is above 10.00% minus 2.00%, the cap is 10.00% a year.

How to convert

The rate is yearly, so you divide by 12 for rent. Monthly rent = converted deposit x yearly rate / 12.

Going the other way, deposit = monthly rent x 12 / yearly rate.

If rent and deposit are already set, you can work out the rate: rate = monthly rent x 12 / converted deposit. Then see if it is above the legal cap.

Dividing by 12 is the formula this tool uses. The article itself does not write out a formula.

Worked examples

A 50 million won deposit turned into rent at a 5% yearly cap: 50,000,000 x 0.05 / 12 = 208,333 won. Rounded to the nearest won.

A 300,000 won rent turned into deposit at 5% a year: 300,000 x 12 / 0.05 = 72,000,000 won.

You turn 100 million won of deposit into rent and pay 500,000 won a month. 500,000 x 12 / 100,000,000 = 6% a year, above a 5% cap. The maximum rent is 100,000,000 x 0.05 / 12 = 416,666 won, so the rent is 83,334 won over.

The 5% in these examples is a number picked to show the math. The real cap is the one shown at the top of the calculator.

What this tool does

It does three things. Deposit to rent, rent to deposit, and a check: enter your rent and deposit and see if the rate is over the cap.

Leave the rate blank and it uses the legal cap. Enter your own rate and it uses that, and warns you when it is above the cap.

The maximum rent is rounded down and converted amounts are rounded to the nearest won. Rent to deposit is not checked against the cap.

Your numbers are calculated in your browser. Nothing is saved or sent to a server.

What to confirm and the limits

This tool is not legal advice. It does not decide which contracts the cap applies to, or what happens to a contract that goes over it.

When you sign, get a confirmed date on the lease and check with a professional if needed. The current law text is on the National Law Information Center site.

When the Bank of Korea Monetary Policy Board changes the base rate, the cap changes. This tool shows the date each value was checked.