[Banks Without Interest Rate Play] "No Way to Stop Rapid Rate Hikes"... Reliance on Interest Rate Cap Type Mortgage Loans

Reducing Loans or Switching to Products That Mitigate Interest Rate Hike Risks
Actively Utilizing the Right to Request Interest Rate Reduction

[Asia Economy Reporter Park Sun-mi] As bank loan interest rates continue to rise, mortgage loans designed to mitigate interest rate hike risks are rapidly emerging as an alternative. With financial authorities reluctant to intervene in the market, borrowers themselves must be vigilant and seek ways to reduce their interest burden.

On the 17th, a senior official from the financial authorities stated, "Both the government and financial authorities can do nothing more than monitor the rapidly increasing bank loan interest rates at present," adding, "It is difficult to instruct banks not to adjust additional or preferential interest rates." Since banks operate autonomously, unless there is a violation, financial authorities have no grounds to intervene directly.

He explained, "The only way to control the sharp rise in interest rates is for the market interest rate increase, driven by the base rate hike sentiment, to stop, which is not easy," and added, "Borrowers have no choice but to reduce their loans, switch to products that mitigate interest rate hike risks, and actively exercise their right to request interest rate reductions to ease their interest burden."

Earlier, Deputy Prime Minister and Minister of Strategy and Finance Hong Nam-ki also said, "There are limitations to the government's excessive intervention in setting interest rate levels." Financial Services Commission Chairman Ko Seung-beom also dismissed calls for slowing the rise in loan interest rates during his appearance before the National Assembly's Political Affairs Committee the previous day, saying, "It is difficult for the government to intervene directly."

With consumer complaints about rising loan interest rates mounting, financial authorities expect that interest rate cap-type and fixed monthly repayment-type products, which have not received much attention until now, will gain focus.

The interest rate cap-type product limits the annual increase in interest rates to within 0.75 percentage points and the increase over five years to within 2 percentage points, regardless of how much the interest rate rises. The fixed monthly repayment-type loan maintains the total monthly principal and interest repayment amount by reducing principal repayment when the loan interest rate rises and interest payments increase.

Despite the rise in market interest rates due to base rate hikes, these products have been overlooked by consumers because borrowers bear an additional interest rate of 0.15 to 0.3 percentage points annually. In fact, the number of mortgage loans with interest rate hike risk mitigation sold by the five major commercial banks?KB Kookmin, Shinhan, Woori, Hana, and NH Nonghyup?was only 90 cases (KRW 18.35 billion) over four months since their launch in July. Of these, 32 were interest rate cap-type and 58 were fixed monthly repayment-type.

A financial authority official advised, "Now that it has been confirmed that the pace of interest rate increases is accelerating, consumers should actively consider utilizing these products," adding, "From next year, banks will regularly notify borrowers twice a year about their right to request interest rate reductions, so consumers need to pay close attention to this."

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