"Qualified Loans Cheaper Than Variable Rates"… Early Year Sell-Out Trend Amid 'Interest Rate Inversion' Phenomenon

Woori·NH Nonghyup Bank Qualified Loan Limit Exhausted
'Fixed' Qualified Loan Interest Rate Lower Than Variable Rate
Qualified Loan Supply Volume Declining Annually

A bank in downtown Seoul on the 1st, where financial authorities are implementing high-intensity loan regulations. / Photo by Moon Honam munonam@

[Asia Economy Reporter Song Seung-seop] As the interest rates on qualified loans have become lower than those of variable rate products, causing a 'reversal phenomenon,' early exhaustion of loan limits is occurring across the banking sector. As the interest rate hike period begins, demand for long-term fixed-rate policy loan products is increasing, but supply is not sufficiently supporting this demand.

According to the financial sector on the 9th, Woori Bank and NH Nonghyup Bank have both reached their qualified loan limits since the start of the new year. Woori Bank's January quota of 33 billion KRW was exhausted on the 3rd, and Nonghyup Bank's first quarter quota has been fully used. Hana Bank, Sh Suhyup Bank, and some regional banks are also expected to run out of their limits soon.

Qualified loans are mortgage loans with fixed interest rates for repayment periods ranging from 10 to up to 40 years. When banks execute the loan, the Korea Housing Finance Corporation purchases the corresponding bonds. Similar to the Bogeumjari Loan, but with a lower entry barrier and a higher loan limit of 500 million KRW. Typically, this product is advantageous during interest rate hikes, with fixed interest rates that are higher than variable rates.

However, since the end of last year, the interest rates on qualified loans have become cheaper than those on general mortgage loans (variable). In November last year, the average interest rate for new general mortgage loans at commercial banks was 3.51%, while qualified loans were at 3.40%, about 0.1 percentage points lower. As of the previous day, some commercial banks' variable rate products still have higher rates than qualified loans.

This is analyzed to be due to the narrowing gap between short- and long-term interest rates in the bond market over the past few months. It means that the interest rates applied when commercial banks raise loan funds have risen faster than the long-term funding rates of the Housing Finance Corporation.

Meanwhile, the supply of qualified loans continues to decline. As of September last year, 4.1 trillion KRW worth of qualified loans were supplied. This compares to 12.6 trillion KRW in 2017, 6.9 trillion KRW in 2018, 8.5 trillion KRW in 2019, and 4.3 trillion KRW in 2020.

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