Insurance Companies' Mortgage Loan Rates Rise Simultaneously... "Demand That Shifted from Banks May Decrease"

Average Interest Rates for Life Insurance Mortgage Loans 2.97~3.70%
Mortgage Loan Rates Rise Along with Market Interest Rates

[Image source=Yonhap News]

[Asia Economy Reporter Oh Hyung-gil] Jo Moon-kyung (41, pseudonym), an office worker preparing to buy a house, visited an insurance company after hearing from an acquaintance that mortgage loans could be cheaper at insurance companies than at banks.

However, when the interest rate was calculated according to his credit rating, a higher rate of 3.46% was applied compared to banks. In the end, Jo decided to take out a loan from his main bank with a preferential interest rate. Jo said, "I thought insurance companies would offer higher loan limits and cheaper rates than banks," adding, "Since there were no preferential rates despite it being a secondary financial institution loan, the conditions were not better than banks, so I gave up."

The notion that mortgage loan interest rates at insurance companies are cheaper than banks no longer holds true. The reversal phenomenon, where rates were lower than banks, has disappeared due to the rise in market interest rates.

With the upcoming implementation of the borrower-specific total debt service ratio (DSR) 40% regulation next month, which limits loan amounts based on borrowers' income, the loan approval threshold at insurance companies is also rising.

On the 21st, the Korea Life Insurance Association announced that the average interest rates for installment-type mortgage loans at domestic life insurance companies ranged from 2.97% to 3.70%. Compared to January (2.78% to 3.63%), most life insurers raised their rates.

The company with the largest rate increase this year is Shinhan Life Insurance. Its rate rose by 32 basis points (bp, 0.01 percentage points) from 2.78% in January to 3.10% in June.

During the same period, Heungkuk Life Insurance increased from 3.03% to 3.29% (26bp), while Kyobo Life Insurance and Hanwha Life Insurance rose by 19bp and 18bp to 3.24% and 3.03%, respectively. Samsung Life Insurance was the only company to lower its rate from 3.01% to 2.97%.

The average mortgage loan interest rates at non-life insurance companies also rose to between 3.00% and 3.51% compared to earlier this year. Samsung Fire & Marine Insurance maintained its rate at 3.00% since January, but Hyundai Marine & Fire Insurance jumped 34bp from 3.17% to 3.51%.

KB Insurance also raised its rate from 2.98% to 3.10%, and NongHyup Property & Casualty Insurance increased from 3.17% to 3.23%.

The reason insurance companies’ mortgage loan rates have surpassed banks is due to rising market interest rates. Insurance companies set loan rates based on government bond yields. As market rates have increased recently, mortgage loan rates have risen accordingly. As of this month, the new mortgage loan rates at the five major commercial banks range from 2.69% to 3.02%, which is lower than those of insurance companies.

Accordingly, with the upcoming enforcement of the borrower-specific DSR regulation next month and the financial authorities strengthening mortgage loan management, it is expected that the growth trend of mortgage loans at insurance companies will soon slow down.

An insurance industry official said, "With market interest rates rising rapidly recently, an increase in mortgage loan rates is inevitable," adding, "As interest rate volatility grows, loan demand that had been concentrated on insurance companies is expected to decrease somewhat."