"Is This Really the Place with the Lowest Interest Rates?"... Young Borrowers Seeking Online Banks

[Asia Economy Reporter Bu Aeri] With the Bank of Korea's additional interest rate hikes anticipated, mortgage loan interest rates are on the verge of surpassing 8%. As fear of rising interest grows, 'Yeongkkeul-jok' (those who borrow to the maximum) are increasingly turning to internet-only banks, which offer relatively lower rates. More people are choosing to refinance (switch loans) from commercial banks to internet-only banks. Internet-only banks offer mortgage loan interest rates about 1 percentage point (p) lower than commercial banks.

According to KakaoBank on the 22nd, the amount of mortgage loan refinancing agreements in October reached 95.4 billion KRW, a 4.8-fold increase compared to August's 19.8 billion KRW. The total mortgage loan agreement amount at KakaoBank in October was 306.1 billion KRW, 2.3 times higher than August's 132.3 billion KRW. Since its launch at the end of February, KakaoBank's cumulative mortgage loan agreement amount stands at approximately 1.1131 trillion KRW.

Recently, demand for checking KakaoBank's mortgage loan limits and interest rates has surged sharply. Last month, the number of inquiries about rates and limits was 106,630, a 75% increase compared to September's 60,940. A KakaoBank representative explained, "Limit and rate inquiries are conducted through an interactive chatbot," adding, "The average time to check limits and rates is 3 minutes and 29 seconds, and accessibility is good even for elderly people or those unfamiliar with digital technology."

K Bank also saw a sixfold increase in mortgage loan refinancing execution amounts in October compared to the third quarter average. As of the end of October, K Bank's loan balance was 10.13 trillion KRW, up 350 billion KRW from September's 9.78 trillion KRW. During the same period, KakaoBank's loan balance increased by 252.6 billion KRW to 27.7142 trillion KRW. Unlike commercial banks, where household loans are decreasing, internet-only banks have seen loan balances rise for ten consecutive months.

This phenomenon appears to be due to the growing attention on internet-only banks' interest rate competitiveness amid the high-interest-rate era. K Bank lowered its apartment mortgage refinancing loan interest rate by 0.7 percentage points and apartment mortgage loan interest rate by 0.2 percentage points the day before. As of that day, the variable mortgage loan interest rates at KakaoBank and K Bank ranged from 4.221% to 6.015% per annum (based on new COFIX). Compared to the five major commercial banks (KB Kookmin, Shinhan, Hana, Woori, NH Nonghyup), whose variable mortgage loan rates range from 5.29% to 7.798%, the lower end is 1.069 percentage points and the upper end is 1.783 percentage points lower.

Competition in jeonse loan interest rates among internet-only banks is also accelerating. K Bank reduced the interest rate on general jeonse loans by 0.3 percentage points the day before, marking the sixth rate cut this year. KakaoBank also lowered jeonse loan interest rates four times from March to September. The jeonse loan interest rates at KakaoBank and K Bank range from 4.22% to 5.68%, which is 1.02 percentage points and 1.66 percentage points lower at the upper and lower ends, respectively, compared to the five major commercial banks' jeonse loan rates of 5.24% to 7.34%.

The reason internet-only banks maintain interest rate competitiveness is that their operating costs are lower than those of commercial banks. Unlike commercial banks that operate offline branches, internet-only banks have no branches. Additionally, since consultations are conducted via chatbots, there are no costs related to agent commissions or brokerage partnerships. A representative from an internet-only bank explained, "Because the entire process from consultation to execution is non-face-to-face, costs are reduced, making it possible to offer customers lower interest rates during high-interest periods."