"Why Are Interest Rates Like This?"... Countdown to the '6% Era' of Home Mortgage Loans

Four Major Banks' Fixed Interest Rates at 3.97~5.37%
Jumped 1%P in 2 Months... Expected to Surpass 6% Within the Year if Base Rate Rises

Real estate stock photo / Photo by Mun Ho-nam munonam@

[Asia Economy Reporter Kim Jin-ho] The mortgage loan interest rates at major commercial banks are rising at an alarming pace. Since the upper limit of mortgage loan rates has already surpassed the mid-5% range, analysts say that if the base rate is raised again this month, entering the 6% range within the year is imminent. There are concerns that borrowers' interest burdens will increase sharply due to the rapid rise in loan interest rates.

According to the financial sector on the 6th, as of the 1st, the mixed (fixed) interest rates at the four major commercial banks?KB Kookmin, Shinhan, Hana, and Woori?were recorded at 3.97% to 5.377% per annum. Compared to the end of August (2.92% to 4.42%), the lowest rate rose by a staggering 1.05 percentage points, and the highest rate increased by 0.957 percentage points.

The situation is similar for variable mortgage loan rates (linked to the new COFIX). They ranged from 3.31% to 4.814% per annum, with the lower and upper bounds rising by 0.69 and 0.624 percentage points, respectively, compared to 2.62% to 4.19% at the end of August.

In other words, loan interest rates are "jumping wildly overnight." This is largely due to soaring market interest rates caused by base rate hikes and inflation (price increases). The 5-year bank bond (AAA, unsecured) rate, which is most commonly used as a benchmark for fixed mortgage rates, rose from 1.891% at the end of August to 2.656% at the end of October, an increase of 0.765 percentage points in about two months.

Additionally, banks have increased their own additional interest rates or reduced preferential rate items under the pretext of household debt volume regulation, further amplifying the rise. Since it is almost certain that the Bank of Korea will raise the base rate this month, loan interest rates are expected to climb even more steeply. The financial sector anticipates the emergence of mortgage loans in the 6% range within the year.

The rise in jeonse loans, classified as loans for actual demand, is also rapid. By the end of last month, the upper limits of jeonse loan interest rates at major commercial banks (KB Kookmin, Shinhan, Hana) all exceeded 4%. KB Kookmin Bank recorded 3.36% to 4.36%, Shinhan Bank 3.11% to 4.01%, and Hana Bank 3.19% to 4.49%. The sharp increase in jeonse loan rates is also attributed to banks raising preferential rates or additional interest rates in response to household loan volume regulations.

In the case of KB Kookmin Bank's unsecured loans, an unusual situation occurred where the interest rate rose by 0.21 percentage points in just one day. As of the 1st, the unsecured loan interest rate at KB Kookmin Bank was at 3.68% to 4.68% per annum, up 0.21 percentage points from the rate on the 31st of the previous month (3.47% to 4.47%). This reflects the impact of the sharp rise in bank bond rates, which form the basis for interest rate calculation.

The problem lies in the borrowers' burden caused by the rapid rise in loan interest rates. According to the Bank of Korea, if interest rates increase by 1 percentage point, the interest burden on household loan borrowers is estimated to increase by 12 trillion won.

For example, a borrower who borrowed 200 million won at 2.5% per annum at the beginning of this year would pay 416,000 won monthly in interest. However, borrowers whose rates have recently risen to 3.5% due to new loans or extensions must pay 583,000 won monthly, an additional 180,000 won per month. Annually, this amounts to a total of 2.16 million won.

Professor Sung Tae-yoon of Yonsei University's Department of Economics expressed concern, saying, "Overall interest rate increases seem inevitable going forward. Since prices are rising, discussions about the base rate will become more active, and accordingly, the loan winter will become even harsher."

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