[Practical Finance] Reckless Interest Rate Switching Is a No-Go... Consider Early Termination Fees and More

Be Cautious of Low-Interest Rate Debt Refinancing Scams

[Asia Economy Reporter Kiho Sung] Mr. Lee, a man in his 40s who barely succeeded in buying a home last September by taking out a mortgage loan, is currently walking on thin ice. He secured 400 million KRW through a variable interest rate mortgage loan at an annual rate of 2.45%, as he did not have much cash on hand, but recent interest rate trends have been unsettling. Having already taken out a loan by pulling together all his resources (Yeongkkeul), Mr. Lee has been looking into refinancing options due to the considerable interest burden. However, he has fallen into deeper contemplation as there are more factors to consider than he initially thought.

Recently, with rising expectations for global economic recovery, government bond yields have increased, causing commercial banks' loan interest rates to rise one after another. For mortgage loans, which account for the largest portion of household loans, the rates have risen about 0.3 percentage points from 2.25%~3.95% in July last year to 2.52%~4.04% currently. This has increased the burden on borrowers with variable interest rate loans, as their interest payments rise immediately. Borrowers who preferred variable rates due to their relatively low interest in a low-rate environment are now facing a boomerang effect amid rising rates. Especially, those who took out Yeongkkeul (all-in) and debt-financed investment (Dae-bit) loans are hit hard. Experts advise that indiscriminate refinancing can lead to higher costs such as early termination fees compared to existing interest, so careful comparison is essential.

First, it is important to look at government policies before focusing on interest rates. In the metropolitan area, the loan-to-value (LTV) ratio limit has been reduced from 70% to 40%, making it difficult to consolidate debts or refinance existing apartment mortgage loans. Therefore, rather than switching to products with simply lower interest rates, it is crucial to first check the LTV limit applicable to one’s region, residence type, and price. Also, some financial institutions in the secondary financial sector are not subject to these regulations, so this should be considered as well.

Additionally, if you are considering refinancing for a move, it is advisable to allow ample time and prepare thoroughly. Once you have decided on a place to move to, whether owned or rented (Jeonse), you should first check the maximum loan amount you can receive based on the collateral value of the house. Skipping this process and rushing into a contract may result in losing your deposit if the loan is rejected. Especially, Jeonse loan applications often take at least two weeks or more, so precise planning in advance is necessary.

Be cautious of low-interest refinancing loan scams, which have become more frequent by exploiting the rising interest rate environment. According to the Jeju Police Agency, over the past three years, there have been 1,544 cases of voice phishing in Jeju, amounting to 23.5 billion KRW in damages. Most of these scams involve impersonating financial institution employees and deceiving consumers by promising loans at low interest rates or high limits. If you have not personally confirmed the interest rates with the financial institution, it is advisable to double-check to prevent falling victim to fraud.

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