If Household Loan Interest Rates Rise by 1%P, Interest Burden Increases by 11.8 Trillion Won

Estimated 72.2% Variable Interest Rate... Direct Hit if Market Interest Rates Rise
Self-Employed Loans 777 Trillion Won... Must Pay 5.2 Trillion Won More with 1%p Interest Rate Increase

Kookmin Bank loan counter scene.

[Asia Economy Reporter Kwangho Lee] It has been revealed that if household loan interest rates increase by 1 percentage point, the interest burden on borrowers would rise by nearly 12 trillion won.

According to data submitted by the Bank of Korea to Yoon Doo-hyun, a member of the National Assembly's Political Affairs Committee from the People Power Party, on the 9th, when interest rates on household loans such as mortgage loans and credit loans rise by 1 percentage point, interest increases by 11.8 trillion won.

Breaking down the increase in interest by income quintile: the 1st quintile (lowest 20%) faces an increase of 500 billion won, the 2nd quintile 1.1 trillion won, the 3rd quintile 2 trillion won, the 4th quintile 3 trillion won, and the 5th quintile (highest 20%) 5.2 trillion won.

Excluding the high-income group in the 5th quintile, low-income and middle-class households would bear an additional interest burden of 6.6 trillion won.

This calculation is based on dividing the total household loan balance of 1,630.2 trillion won as of the end of the 4th quarter last year, according to the Bank of Korea's household credit statistics, by the proportion of financial debt by income quintile identified in last year's Household Finance and Welfare Survey.

The Bank of Korea estimates that about 72.2% of household loans are variable-rate loans. Variable-rate loans are directly affected by market interest rate increases.

Although the proportion of variable-rate loans may differ by income quintile, this analysis applied the same ratio to all quintiles.

The total interest increase and the increase by income quintile were estimated by multiplying the variable-rate household loan balance by the 1 percentage point interest rate hike.

According to the Bank of Korea's analysis, the share of total financial debt held by each income quintile in South Korea is 3.9% for the 1st quintile, 9.4% for the 2nd, 17% for the 3rd, 25.6% for the 4th, and 44.1% for the 5th.

Using the same method, when interest rates rise by 0.5 percentage points, household loan interest is estimated to increase by 5.9 trillion won. By income quintile, this corresponds to 200 billion won for the 1st quintile, 600 billion won for the 2nd, 1 trillion won for the 3rd, 1.5 trillion won for the 4th, and 2.6 trillion won for the 5th.

Meanwhile, the Bank of Korea estimates the size of domestic self-employed loans at 777 trillion won, and if their loan interest rates rise by 1 percentage point, they are expected to pay an additional 5.2 trillion won in interest.