When you turn a jeonse (a Korean lease paid as one large refundable deposit) into wolse (monthly rent), the conversion rate is monthly rent × 12, divided by the deposit being converted, times 100. During a renewal, the legal ceiling is the Bank of Korea base rate plus 2%. If the base rate is 2.5%, the cap is 4.5% a year. How much the rent rises depends on how much of the deposit you convert, but a landlord cannot demand rent above this ceiling under Article 7-2 of the Housing Lease Protection Act.
Where the formula comes from
The conversion rate shows the annual percentage applied to the converted portion of the deposit to express it as monthly rent. You can also run it backwards from an existing deposit and rent:
Conversion rate (%) = (monthly rent × 12) ÷ (jeonse deposit − post-conversion deposit) × 100
Say a 300 million won jeonse becomes a 200 million won deposit plus rent, with rent set at 400,000 won. The converted amount is 100 million won. 400,000 × 12 = 4.8 million, divided by 100 million, gives 4.8% a year. To find the rent from a chosen rate, use converted deposit × rate ÷ 12: 100 million at 4.5% yields about 375,000 won a month. The Korea Real Estate Board / LH dispute-mediation calculator uses the same math.
What sets the legal ceiling
Article 7-2 caps the converted rent at the lower of two rates: a rate tied to bank lending rates and regional conditions set by presidential decree, and the Bank of Korea base rate plus a decreed rate. That decreed add-on is currently 2% a year, down from a former 3.5%. So the commonly cited ceiling is <base rate + 2%>, and because the base rate is reset up to eight times a year by the Monetary Policy Board, the cap moves with the base rate at the time of the contract. The table below shows <base rate + 2%> ceilings by base-rate band, assuming this is the lower of the two.
| Base rate (%) | Base rate + 2% cap (%) | Monthly cap on 100M won converted (10k won, example) |
|---|---|---|
| 2.00 | 4.00 | 33.3 |
| 2.50 | 4.50 | 37.5 |
| 3.00 | 5.00 | 41.7 |
| 3.50 | 5.50 | 45.8 |
The last column is <100 million × cap ÷ 12> (example). This applies when converting a deposit into rent during a renewal, not to price negotiation on a brand-new lease.
Cut the deposit by 100 million won — how much does rent rise?
Apply the cap rate to the amount you cut. At a 2.5% base rate and a 4.5% cap:
| Deposit reduction (10k won, example) | Rate applied (%) | Annual rent (10k won) | Monthly rent (10k won) |
|---|---|---|---|
| 5,000 | 4.50 | 225.0 | 18.8 |
| 10,000 | 4.50 | 450.0 | 37.5 |
| 15,000 | 4.50 | 675.0 | 56.3 |
| 20,000 | 4.50 | 900.0 | 75.0 |
Annual rent is <reduction × 4.5%>, monthly is that divided by 12 (example). Cut the deposit by 100 million won and rent can rise up to about 375,000 won; cut it by 200 million and up to 750,000. These are ceilings — real contracts are often lower, and if the market conversion rate sits below the legal cap, the lower figure governs. See the Ministry of Land guidance and the mediation calculator to cross-check.
Things to check
- Confirm the Bank of Korea base rate at the moment of conversion — the cap tracks <base rate + 2%>.
- Back-solve any proposed rent through <converted deposit × rate ÷ 12> to see if it exceeds the cap.
- Remember the real ceiling is the lower of the lending-rate basis and <base rate + 2%>.
- This cap applies to conversions at renewal, distinct from new-lease pricing.
- Cross-check unclear results with the Korea Real Estate Board / LH calculator.