Half of Salary 'Gone in a Flash'... Mortgage Loan Rates Rising Again

The maximum interest rates on mortgage loans at commercial banks have exceeded 7% per annum, increasing the repayment burden on borrowers. Mortgage loan interest rates in the 2-3% range have almost disappeared within the past 1-2 years. Even internet-only banks, which compete on interest rate competitiveness, have a ceiling in the high 3% range.

Banks have recently been raising mortgage loan interest rates one after another. On the 3rd, Woori Bank increased mortgage loan interest rates by 0.2-0.3 percentage points through preferential rate adjustments. Shinhan Bank also raised the additional rate on variable mortgage loan interest rates by 0.05 percentage points on the 1st. KB Kookmin Bank raised mortgage loan interest rates by up to 0.2 percentage points on the 11th of last month. NH Nonghyup Bank reduced preferential mortgage loan rates by 0.2 percentage points last month, and Hana Bank also cut the interest rate discount on its non-face-to-face mortgage loan products by 0.15 percentage points.

As of this morning, the variable mortgage loan interest rates (based on new COFIX) of the five major banks (KB Kookmin, Shinhan, Woori, Hana, NH Nonghyup) were recorded at 4.55-7.177%. The lower bound of Kakao Bank’s rates, which had emphasized mortgage loan interest rate competitiveness, also exceeded 4% as of this date. K Bank’s apartment mortgage loan interest rate lower bound remains in the 3% range at 3.97%, but even that is approaching 4%.

A mortgage loan simulation conducted through a commercial bank showed that borrowing 500 million KRW (based on equal principal and interest installment repayment over 40 years) at an interest rate of 3.95% resulted in a monthly payment of about 2.07 million KRW including principal and interest. At an interest rate of 5.98%, the monthly payment rose to approximately 2.74 million KRW. If the loan was executed at a 7% interest rate, the monthly payment exceeded 3.1 million KRW.

The average mortgage loan interest rates handled by banks are also on the rise. According to the Korea Federation of Banks, the average interest rates for installment repayment mortgage loans (based on new loan amounts) at the five major banks (KB Kookmin, Shinhan, Woori, Hana, NH Nonghyup) increased from 4.24-4.52% (for loans handled in August) to 4.29-4.58% (for loans handled in September), with the upper and lower bounds rising by 0.06 and 0.05 percentage points respectively.

The resurgence of mortgage loan interest rates appears to be due to multiple factors. As the government steps up household loan management, banks must follow suit. Maintaining higher interest rates helps slow the growth of household debt. Moreover, the maturity of last year’s high-interest savings and time deposits has led banks to compete for deposits, which is also related to the rise in loan interest rates. Rising deposit interest rates increase banks’ funding costs, which ultimately affects loan interest rate increases. The COFIX (Cost of Funds Index) based on new loan amounts in September rose by 0.16 percentage points from the previous month to 3.82%, marking the highest level this year.

For this reason, financial authorities are also strengthening monitoring efforts. At a financial situation inspection meeting yesterday, Lee Bok-hyun, Governor of the Financial Supervisory Service, said, “Intensified deposit competition in the financial sector for attracting high-interest deposits and expanding scale could lead to further increases in loan interest rates, increasing interest burdens on small business owners and self-employed individuals.” He urged, “Closely monitor indicators related to excessive competition such as trends in deposit interest rates across the financial sector, fund flow trends, and asset growth rates, and if necessary, conduct interviews with management to encourage sound management.”