3,544 Mortgage Loans with Interest Exceeding Principal
Assemblyman Min Hyung-bae "Ban on Interest Charges Exceeding Principal Needed"
[Asia Economy Reporter Kangwook Cho] It has been revealed that there are more than 3,000 cases among commercial bank mortgage loans where the interest paid exceeds the principal amount.
According to data submitted by the Financial Supervisory Service to Min Hyung-bae, a member of the National Assembly's Political Affairs Committee from the Democratic Party of Korea, as of the end of July, there were 3,544 mortgage loans for which the interest paid to banks exceeded the loan principal.
While the loan principal amounted to 126.6 billion KRW, the interest already paid reached 143.5 billion KRW. The most common case was when the interest paid was 1 to 1.2 times the principal, accounting for 71.7%. Additionally, 23.1% were between 1.2 to 1.5 times, and 5.2% were more than 1.5 times.
The reason interest exceeds the principal is interpreted to be related to the long loan periods characteristic of mortgage loans.
Looking at loans where interest exceeded principal by elapsed period, there were zero cases under 5 years, 0.3% for 5 to 9 years, 1.3% for 10 to 14 years, 70.4% for 15 to 19 years, 27.4% for 20 to 24 years, and 0.5% for 25 to 29 years.
In the early to mid-2000s, the average interest rate on mortgage loans was higher at 5 to 7% compared to now, and due to the long loan periods, the interest accumulated was also higher.
There is also an interpretation that interest may have rapidly increased due to overdue penalty interest rates being added when borrowers failed to repay interest or principal on time.
However, even if the loan was originally taken out with a fixed interest rate, it is possible to switch to products with lower rates, so there are criticisms that this phenomenon is not natural.
Assemblyman Min emphasized, "Even banks have cases where interest exceeds principal, so in the secondary financial sector, cases where the tail is bigger than the belly like this are likely to be frequent," and added, "It is necessary to prohibit charging interest exceeding the principal through legal amendments."
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