[1mm Financial Talk] The Era of 'Mortgage Loans at 8%'... What Is the Actual Loan Interest Rate?

Mortgage rates rose to 8%, but
cases of loans without preferential rates are rare
There is a gap between the upper limit of rates and actual loan rates

As the U.S. central bank, the Federal Reserve (Fed), hinted at additional interest rate hikes, attention is increasing on whether the Bank of Korea's Monetary Policy Committee will raise rates at its meeting scheduled for the 25th. The photo shows the loan counter at a commercial bank in downtown Seoul on the 19th. Photo by Kim Hyun-min kimhyun81@

[Asia Economy Reporter Sim Nayoung] On the 13th, the Bank of Korea will hold the first Monetary Policy Committee meeting of the new year to decide the base interest rate. The financial sector widely expects another 0.25 percentage point increase in the base rate. As news articles flood in reporting that commercial banks' mortgage loan interest rates have exceeded 8% from the beginning of the year, the public is worried whether loan interest rates will rise again immediately.

However, how many people actually receive variable-rate mortgage loans at 8% from commercial banks? As of the 12th, the upper limit of variable mortgage loan interest rates at the five major banks (KB Kookmin, Shinhan, Hana, Woori, NH Nonghyup) was 8.11%. Woori Bank exceeded 8%, NH Nonghyup was at 7%, and the other banks were in the high 6% range. Shinhan Bank's rate is in the 5% range.

However, this alone does not allow us to definitively say which bank's rates are high or low. Shinhan Bank reports rates based on internal credit grade 1, while the other banks report rates based on grade 3 to the media. Banks explain that "grade 3 represents about half of all borrowers and is considered a typical customer base, so it was used as the standard."

The upper limit of interest rates at commercial banks is the highest rate notified to customers of the corresponding credit grade when no preferential interest rate is applied. An employee of a commercial bank said, "In the case of mortgage loans, since the loan amount is in the hundreds of millions of won, even a 0.1% difference in interest rate means tens of thousands of won difference in monthly interest, so customers carefully compare and decide," adding, "For typical financial consumers, wouldn't they choose the option that meets at least one more condition to receive more preferential interest rates? In reality, it is very rare for someone to receive no preferential interest rate at all."

Even Woori Bank, which has the highest level of interest rates, will expand preferential interest rates starting from the 13th. For example, the preferential rate applied when transferring salary or pension and when using credit cards will be increased from 0.1 percentage points to 0.2 percentage points. Additional interest rates will also be reduced. For new COFIX 6-month and 6-month corporate bond-based apartment mortgage loans, the head office adjustment rate will be lowered by 0.7 percentage points. In conclusion, even if commercial banks' mortgage loan interest rates exceed 8%, it is hard to find people who actually took loans at 8%, and the upper limit of interest rates is expected to fall to the 7% range.

Looking at the 'Loan Handling Proportion by Interest Rate Range' disclosed on the Consumer Portal of the Korea Federation of Banks, it is clear that there is a gap between the upper limit of interest rates and actual loan interest rates. As of November last year, the upper limit of variable mortgage loan interest rates at the five major banks was in the mid-to-high 6% range. However, looking at the proportion of loans newly issued this month by interest rate range (installment repayment method), most were in the 4-5% range. KB Kookmin Bank lent 98.1%, Hana Bank 95%, NH Nonghyup 94.4%, Woori Bank 85.8%, and Shinhan Bank 84.1% at 4-5% interest rates.

A financial sector official said, "'Mortgage loan 8%' type upper limit interest rates are meaningful as an indicator of how quickly interest is rising, but it does not mean that all loans made at branches are at the 8% level," adding, "Since the Financial Supervisory Service is signaling that loan interest rate increases are excessive, even if the Bank of Korea raises the base rate, banks will find it difficult to raise interest rates further."