"Yikes! Screaming Interest Rates"... 'Yeongkkeul-jok' Cry Out Over US Big Step Hike

30s Couple with Full Mortgage "Interest Burden Increased by 400,000 Won in One Year"
Self-Employed Also Say "Loan Interest Rates Scarier Than Quarantine Rules"

BOK Base Rate Hike Expected to Accelerate
Bank Loan Interest Rates Set to Rise Further
Mortgage and Credit Loan Rates to Increase More

[Asia Economy Reporter Sim Nayoung] # Office workers Jihyunwoo (39) and Park Youngmin (37), a married couple, sighed continuously even while dining out with their children on Children's Day. They took turns searching for articles about the US interest rate hike on their smartphones and checking their banking apps. Thinking that mortgage loan interest rates would rise further, they found it hard to eat. The couple, who bought a house two years ago, received a notice from their bank last month that their mortgage loan interest rate had increased from 2.85% to 3.49%.

Mr. Park said, "The monthly interest alone is 1.1 million won. It has gone up by nearly 400,000 won compared to a year ago," adding, "It's enough to faint." But that's not all. Mr. Ji said, "Last year, I opened a 30 million won overdraft account at an internet bank to invest in stocks, but when I tried to extend it, the interest rate rose from 3.4% to 5.1%," and added, "I'm seeing negative returns, so I can't withdraw money, and I might end up using my salary just to pay the interest."

As the US took a big step in raising its benchmark interest rate, the Bank of Korea also accelerated its rate hikes. This causes the benchmark rates banks use to raise funds to increase, which in turn drives up loan interest rates for customers. The cries of the Yeongkkeuljok (people who borrowed to the limit) have grown louder. From August last year to April this year, the Bank of Korea raised the benchmark interest rate four times in total. As a result, mortgage loan interest rates at commercial banks have exceeded 6%, and credit loan rates have risen to 5%, with a very high possibility of further increases.

On the 6th, the mortgage loan interest rates at the five major banks (KB Kookmin, Shinhan, Woori, Hana, NH Nonghyup) were recorded as follows: mixed rates 4.02?6.09%, variable rates 3.42?5.08%, and credit loan rates 3.77?4.94%. On financial communities, complaints like "Until last year, you could borrow several hundred million won at interest rates in the low 2% range, but in just one year, it's a completely different world" are pouring out.

[Image source=Yonhap News]

Self-employed people also unanimously say, "Loan interest rates are scarier than quarantine rules." Seo Minju (43), who runs a famous franchise chicken restaurant, said that sales yesterday, which was Children's Day, were less than a third of a usual weekend. This is because as COVID-19 restrictions were lifted and people started dining out, delivery orders significantly decreased.

Ms. Seo said, "When I opened the store, I took out a 190 million won loan from several banks, and the interest, which was 350,000 won per month at first, now exceeds 700,000 won," adding, "When business was good, I had no worries, but now that it's obviously going to be slow, my chest feels tight just thinking about paying the interest."

As interest rates soared and household loan demand decreased from early this year, banks lowered interest rates by 0.1 to 0.55 percentage points to ease loan access. However, such artificial rate cuts are expected to have limited effect going forward. When benchmark rates rise and benchmark indices increase, no matter how much banks try to lower loan interest rates, there is a limit.

A financial industry official said, "When the benchmark interest rate rises, COFIX and financial bond rates will also increase, and even if banks lower the additional margin rates they add to make a profit, the overall effect of lowering interest rates will be buried," adding, "In this situation, consumers will find it hard to feel that interest rates have actually been adjusted."