[The Hidden Side of Household Loans] ① Household Loans Decreased in August... Why?

More than 2 Trillion Won in 50-Year Mortgage Loans Released
But Overall Net Increase in Mortgage Loans Actually Decreases

A customer is receiving consultation at the bank loan consultation desk. Photo by Jinhyung Kang aymsdream@

In August, the growth of household loans at the five major banks appears to have slowed down. Although 50-year mortgage loans have become popular enough to be issued in the trillion-won range recently, the total balance of household loans actually decreased slightly compared to the end of July. According to the five major banks (Kookmin, Shinhan, Hana, Woori, Nonghyup) as of the 21st, the balance of household loans was recorded at 678.6399 trillion won, down 58.1 billion won from the end of July (679.2209 trillion won). Most notably, mortgage loans decreased by 70.8 billion won (from 512.8875 trillion won to 512.8167 trillion won).

The Impact of 50-Year Mortgage Loans Is Not Significant

What is the reason? The first is the decline in jeonse deposit loans and group loans. The mortgage loan balances provided by the financial sector to the media include not only housing purchase funds and living stabilization funds but also jeonse and group loans. During the same period, jeonse deposit loans at the five major banks decreased by 38.89 billion won (from 122.9823 trillion won to 122.5934 trillion won), and group loans decreased by 37.84 billion won (from 159.785 trillion won to 159.4066 trillion won).

The second reason is that the net increase in housing purchase funds and living stabilization funds did not offset the decrease in jeonse and group loans. The financial authorities pointed to 50-year mortgage loans as the cause of household loan growth earlier this month. In fact, the new issuance amount of 50-year mortgage loans at the five major banks reached 2.0677 trillion won (as of the 18th of this month), but it did not push up the total household loan balance.

Looking at each bank, this phenomenon is even clearer. The banks that issued a large amount of 50-year mortgage loans were Nonghyup Bank, Hana Bank, and Kookmin Bank. The new issuance amount ranged from 500 billion to 700 billion won per bank from the product launch in July to the 18th of this month. Nevertheless, the total mortgage loan balance either decreased by nearly 10 billion won (Hana Bank) or increased by about 10 billion won (Nonghyup Bank and Kookmin Bank) compared to the end of July until August 21.

Interest Rate Hikes and Refinancing Demand Weakened Momentum

On the 14th, in a real estate-dense shopping district in Songpa-gu, Seoul, where the decline in real estate prices and the transaction freeze phenomenon continue, apartment listings with market prices are posted. Photo by Jinhyung Kang aymsdream@

Market banks analyze that interest rate hikes and refinancing demand have weakened the momentum of 50-year mortgage loans. A mortgage loan officer at Bank A said, "In the first half of this year, we expected mortgage loan interest rates to fall, but recently, due to the influence of the U.S., the prevailing opinion is that they will rise," adding, "Financial consumers with extra funds are repaying before interest rates rise further."

A representative from Bank B said, "Extending the loan term reduces monthly principal repayments, so existing borrowers have considerable demand to switch to 50-year mortgage loans to reduce their fixed monthly costs," explaining, "An increase in new 50-year mortgage loan issuance does not necessarily lead to an overall increase in mortgage loans." For example, a borrower who took out a 300 million won mortgage loan with a variable interest rate of 3.73% and a 30-year term in February last year, paying 1.39 million won monthly, would see their monthly payment drop to about 1.12 million won if they switch to a 50-year mortgage loan this August (assuming a mixed interest rate of 4%), thus increasing the incentive to choose a 50-year mortgage loan.

A mortgage loan officer at Bank C said, "Although it looks like a lot when you isolate the 2 trillion won increase in 50-year mortgage loans, its impact on the overall mortgage loan market is minimal," adding, "When 40-year mortgage loans were introduced last year, fluctuations of this scale were common in the mortgage loan market."

Nevertheless, market banks are suspending sales of 50-year mortgage loan products or imposing age restrictions under pressure from financial authorities. Gyeongnam Bank announced it will sell the product only until the 25th, and Nonghyup Bank said it will do so until the end of this month. KakaoBank also decided to impose an age limit of 34 years or younger starting from the 25th.