Variable Mortgage Rates Near 8%, Eoljuka Borrowers Tighten Belts
Banks Lower Margins, but Interest Burden to Remain High Next Year
"From today, the interest alone has exceeded 2 million won per month. The end of the year feels even tougher. I have no choice but to tighten my belt and repay the principal as quickly as possible, even if it's just one won."
Mr. Cha Sang-min (39), who bought an apartment in Ramian, Gongdeok, Mapo-gu, Seoul two years ago, was shocked a few days ago when he received a text message that the interest rate on his 470 million won mortgage loan would rise to 6.49%. The interest rate on his 100 million won unsecured loan had already climbed to 7.47%.
After calculating, the combined interest on the two loans amounted to 2.22 million won per month. Including the principal, he has to repay 3.6 million won every month. Mr. Cha said, "When I first took out the loan in December 2020, the interest rate was in the 3% range. House prices are falling, but interest rates are rising. Back then, I never imagined such a difficult time would come."
The mortgage loan interest rates did not stop rising until the last month of this year. This is because the newly issued COFIX (Cost of Funds Index), which commercial banks use as a benchmark when setting variable mortgage loan interest rates, rose by 2.65 percentage points over the year.
The Korea Federation of Banks announced on the 15th that the COFIX (as of November) rose to 4.34%. In January this year (based on December 2021), COFIX was 1.69%, showing a steep upward trend since then. This is the first time COFIX has exceeded 4% since it was first announced in January 2010. After 12 years and 10 months, the variable mortgage loan interest rate hit a record high, meaning the interest burden on "Yeongkkeul" borrowers has also increased accordingly.
The variable mortgage loan interest rates at commercial banks are on the verge of reaching 8%. As of the 16th, the variable mortgage loan interest rates at the five major banks (KB Kookmin, Shinhan, Hana, Woori, NH Nonghyup) reflected the previous day's COFIX increase, ranging from 5.19% to 7.72%. Compared to the 3% to 5% range in January this year, this is a significant jump. Although financial authorities pressured banks to lower their loan spread rates, and banks have cooperated in this direction, the rapid rise in market interest rates has made it insufficient for consumers to feel relief, according to financial industry sources.
Nevertheless, commercial banks are likely to implement another round of spread rate cuts soon. Financial Supervisory Service Governor Lee Bok-hyun mentioned on November 28 that "in exceptional situations, financial authorities must play their role even if they face some criticism" regarding interest rate intervention, indicating they are monitoring the situation.
A commercial bank official said, "We are internally reviewing measures to adjust interest rates by lowering the spread and increasing preferential rates." Woori Bank announced earlier this month that it would reduce jeonse loan interest rates by up to 0.85 percentage points, and NH Nonghyup also plans to cut jeonse loan interest rates by up to 1.1 percentage points starting in January, both measures stemming from this context.
The "march of hardship" for Yeongkkeul borrowers is expected to continue next year. Due to the Federal Open Market Committee (FOMC) implementing a big step (a 0.50 percentage point increase in the base rate) on the 14th, the Bank of Korea has no choice but to continue raising the base rate into next year. When the Bank of Korea raises the base rate, commercial bank loan and deposit rates also rise accordingly. The Bank of Korea's first Monetary Policy Meeting to decide the base rate next year will be held on January 13.
© The Asia Business Daily(www.asiae.co.kr). All rights reserved.
