Insurance Company Loan Rates Surpass Banks... Already Approaching 7%

Lee Chang-yong, Governor of the Bank of Korea, is speaking at a press conference on monetary policy direction held at the Bank of Korea in Jung-gu, Seoul on the 26th. On the same day, the Monetary Policy Committee of the Bank of Korea raised the base interest rate by 0.25 percentage points from 1.50% to 1.75%.
/Photo by Joint Press Corps

[Asia Economy Reporter Changhwan Lee] As the base interest rate rises, mortgage loan (jumdae) interest rates at second-tier financial institutions such as insurance companies are also soaring sharply. Some insurance companies' jumdae interest rates have surpassed 6%, higher than most banks.

With the base interest rate expected to continue rising throughout the year, there are forecasts that the highest jumdae interest rate will soon exceed 7%.

According to the Life Insurance Association and the General Insurance Association on the 30th, the top-end jumdae interest rate of domestic insurance companies announced this month was 6.38%, up 0.4 percentage points (p) from 5.98% last month.

By insurance company, Kyobo Life's "Kyobo Prime Hybrid Mortgage Loan" variable interest rate installment repayment apartment collateral loan product had the highest interest rate at 6.38%, an increase of 0.6%p compared to the previous month.

NH Nonghyup General Insurance's variable interest rate installment repayment apartment collateral loan product "Haealim Apartment Loan I" followed with an upper interest rate of 6.35%, up 0.37%p from the previous month. This is the first time this year that insurance companies' jumdae top interest rates have exceeded 6%.

For the four major banks, the upper limit of jumdae (fixed type) reaches 6.59%, and insurance companies' jumdae interest rates are approaching this level. Loan interest rates at second-tier financial institutions like insurance companies have generally been lower than those at first-tier banks, but recently they have become almost similar.

The rise in insurance companies' loan interest rates is due to the increase in the base interest rate. The Bank of Korea has raised the base interest rate several times this year, and accordingly, insurance companies' loan interest rates have also increased.

Another reason for the rise in interest rates is the recent increase in loan demand at insurance companies. Banks limit the total debt service ratio (DSR) to 40% of annual income when lending, but insurance companies allow up to 50%, enabling borrowers to take out larger loans, thus increasing demand for insurance company loans.

In response, insurance companies are actively expanding loans, including extending loan maturities. Samsung Life and Samsung Fire & Marine recently extended the maximum jumdae maturity from 35 years to 40 years. They are the first in the second-tier financial sector to offer 40-year mortgage loan products.

Extending the jumdae maturity reduces the monthly principal and interest repayment burden, effectively increasing the loan limit. Previously, the five major commercial banks also extended the maximum jumdae maturity from 35 years to 40 years.

Jumdae interest rates are expected to rise further. The market expects the Bank of Korea to raise the base interest rate two or three more times this year.

Global investment bank (IB) Morgan Stanley predicted in a Korean economic strategy report on the 26th (local time) that "the Bank of Korea will consecutively raise the base interest rate by 0.25 percentage points in July, August, and October, resulting in a year-end base interest rate of 2.50%."

Meritz Securities also confirmed the Bank of Korea's proactive stance on price stabilization and raised its year-end base interest rate forecast from 2.25% to 2.50%. Accordingly, there are expectations that insurance companies' jumdae interest rates will soon exceed 7%.

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