"Interest Rates Also in the Yeongkkeul Era"...Salaried Workers Are Crying

Bank Loan Interest Rates Rise Sharply
Mortgage Loan Interest: Tens of Thousands of Won More to Pay Monthly
Salary Earners with Personal Loans Also Face Rising Interest Burden

Bank of Korea Expected to Raise Base Rate Again
COFIX Announcement on the 15th... Mortgage Loan Rates Projected to Reach 6%

Experts Say "Pressure on 'Yeongkkeul' Borrowers Will Increase Further"

[Asia Economy Reporter Shim Nayoung] "Now I have to gather every bit of my soul to pay the interest." Comments poured in under a post on a salary earner community early on the 15th. "I was shocked when I went to extend my loan and the interest rate jumped from 2% to 4%." "The era of 'Yeongkkeul' interest rates, a mysterious win for the homeless."

As banks' loan interest rates rise sharply, the newly coined term 'Yeongkkeul interest' is spreading. Bank loan interest rates have been on the rise since the third quarter of last year. After the Bank of Korea consecutively raised the base interest rate three times from August last year to January this year, mortgage loan interest rates at commercial banks, which were in the 2-3% range, have increased to 3-5%.

Compared to those who purchased homes during the 'zero base rate' period, salary earners trying to buy apartments amid the current interest rate hike have to pay much more interest. For example, someone who took out a 320 million KRW mortgage loan (hybrid type) in May 2020 borrowed at an interest rate of 2.86% and paid 1,325,092 KRW monthly in interest. Applying for the same mortgage loan under the same conditions in February now, with an interest rate of 4.65%, means paying 1,650,038 KRW in interest monthly. (See table) Even buying the same house means paying 320,000 KRW more per month than two years ago.

Those with variable interest rate loans have also seen increased interest burdens. A representative from a commercial bank said, "People who bought homes with variable interest rates when rates were at their lowest 1-2 years ago have also been affected by the recent rate hikes, likely increasing their monthly interest payments by tens of thousands of won."

[Image source=Yonhap News]

Salary earners with personal loans are also facing increased interest burdens. For example, a salary earner who took out a 50 million KRW overdraft loan from an internet bank saw the loan interest rate rise from 2.64% in February last year to 4.58% now, resulting in an additional 970,000 KRW in annual interest payments. During this period, the bank raised the loan interest rate by 0.89 percentage points, reflecting the 1-year financial bond rate increase of 1.05 percentage points, which serves as the benchmark for personal loans. The government's policy to strengthen mid-interest loans also influenced this, as the bank raised interest rates when existing high-credit customers applied for loan extensions.

The COFIX for January, to be announced by the Korea Federation of Banks on the 15th, is expected to rise further. COFIX is an indicator showing how much domestic eight banks spend (interest rate) to secure funds for loans. After the Bank of Korea raised the base rate by 0.25 percentage points last month, commercial banks also increased deposit interest rates by up to 0.3 percentage points, leading to expectations of a definite rise in January COFIX. This will prompt banks to further raise variable mortgage loan interest rates. Predictions suggest that if the Bank of Korea raises the base rate twice more this year (by 0.5 percentage points), variable rates could rise to the 6% range.

Professor Kim Sangbong of Hansung University’s Department of Economics said, "Along with the increased interest burden, the government's expansion of housing supply will increase the pressure on salary earners who bought homes by 'Yeongkkeul' borrowing."

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