Too Low Interest Rates Make Borrowing Unnecessary... Credit and Mortgage Loan Rates Hit All-Time Lows

[Asia Economy Reporter Kim Min-young] While bank mortgage loans and unsecured loans are surging, the interest rates on unsecured loans at the five major banks have fallen by about 0.9 percentage points over the past year. During the same period, mortgage loan interest rates secured by apartments, villas, and other properties only decreased by 0.22 percentage points.

According to the Bankers Association on the 6th, as of last month, the average interest rate on personal unsecured loans at the five major banks?Shinhan, KB Kookmin, Hana, Woori, and NH Nonghyup?was 2.332% per annum, down 0.838 percentage points from 3.17% in August 2019 exactly one year ago.

In January of this year, the average rate was still 3.126%, but it has now dropped to the low 2% range. Borrowing 100 million KRW at 2.33% results in a monthly interest payment of approximately 194,000 KRW.

During the same period, mortgage loan rates fell from 2.772% to 2.552%, a decrease of 0.22 percentage points. At this rate, the monthly interest on a mortgage loan is 212,500 KRW. This has even led to an inversion phenomenon where unsecured loan rates are lower than mortgage loan rates.

Interest rates on overdraft accounts, considered an emergency fund pocket for high-credit borrowers such as large corporations, public officials, and professionals, also dropped significantly. As of last month, the overdraft account rate was 2.758%, higher than other loans, but it experienced the largest decline of 0.874 percentage points over the past year.

With these ultra-low loan interest rates, the balances of unsecured loans (including overdraft loans) and mortgage loans have surged. The balance of unsecured loans last month was 124.2747 trillion KRW, an increase of 4.0705 trillion KRW from the previous month. The mortgage loan balance also rose by 4.1606 trillion KRW to 456.9836 trillion KRW compared to the previous month. The combined increase in these two loan types exceeded 8 trillion KRW.

A bank official said, “There seems to be a psychology among customers who can obtain unsecured loans to ‘get it first’ as rumors circulate that financial authorities might tighten unsecured loan regulations,” adding, “There also appears to be significant demand for loans to subscribe to newly listed public stocks.”

This content was produced with the assistance of AI translation services.