Mortgage Loan Interest Rates at 7% Era... Growing Complaints from '2030 Yeongkkeuljok'

Possibility of Additional Interest Rate Hike by Bank of Korea
Mortgage Loan Rates Expected to Reach 7%
2030 Young Chul-jok Say "80% of Salary Goes to Interest"

A property listing notice is posted at a real estate agency in downtown Seoul. (Photo by Yonhap News)

[Asia Economy Intern Reporter Lee Seohee] The couple Kim, both in their 40s raising elementary school children, purchased an 84㎡ apartment in Songdo, Incheon, in September 2020 for 1.28 billion KRW. They took out a 400 million KRW mortgage loan and gathered an additional 100 million KRW through credit loans and company employee loans. They chose a non-grace period principal and interest equal installment product with a mid-2% variable interest rate (6 months) for 30 years, repaying principal and interest monthly. At the time of purchase, Kim was repaying about 2 million KRW per month, but recently, with the rise in mortgage and credit loan interest rates, he has had to pay about 900,000 KRW more monthly. With the increased burden of living expenses due to inflation, Kim feels troubled every time he hears reports predicting further interest rate hikes.

Recently, the U.S. Federal Reserve (Fed) decided on a 'Giant Step' (a 0.75 percentage point increase in the base interest rate), increasing the possibility of additional rate hikes by the Bank of Korea. Since the interest rate gap between Korea and the U.S. could widen, there are predictions that the Bank of Korea will take a 'Big Step' (a 0.5 percentage point increase) as early as July. When the base interest rate rises, market interest rates and loan interest rates also increase. This is why some expect mortgage loan rates to soon rise to the 7% range annually.

This expectation is already materializing in the financial sector. As of the 20th, the 5-year fixed (hybrid) interest rate for Woori Bank's representative mortgage product, 'Woori Apartment Loan,' recorded 5.51?7.21% annually. On the 16th, the rate was 5.40?7.10%, meaning the upper and lower bounds of the rate rose by 0.11 percentage points in just two trading days.

The problem is that most mortgage borrowers use variable interest rate products. As of April, only 19.2% of new mortgage loans from deposit banks were fixed-rate. This means 80.8% were variable-rate loans. In a structure like Korea's, where the proportion of variable rates is high, the impact of interest rate hikes is inevitably significant.

Seoul City Exclusive 84㎡ Medium-Sized Apartment Mortgage Loan Repayment Amount Forecast (Unit: 10,000 KRW) (Source: Ministry of Land, Infrastructure and Transport Actual Transaction Price, Bank of Korea Economic Statistics System, Zigbang)

If interest rates rise sharply, the burden on so-called 'Yeongkkeuljok' (those who borrow to the maximum) is expected to increase. Real estate big data company Zigbang analyzed the changes in monthly repayment amounts borrowers must bear due to interest rate hikes. According to the analysis, a person who purchased an 84㎡ apartment in Seoul by borrowing up to the loan limit would see their monthly repayment increase by 820,000 KRW. As of the first half of this year, the average sale price of an 84㎡ apartment in Seoul was 1.28582 billion KRW. Applying the maximum loan-to-value ratio (LTV), one can borrow up to 437.16 million KRW. When borrowing up to the limit, the monthly repayment amount the borrower must pay rises from 2.09 million KRW at a 4% interest rate to 2.91 million KRW at 7%. This assumes a 30-year loan period with a non-grace period principal and interest equal installment product.

Since the second half of 2020, a 'panic buying' wave centered on the metropolitan area has produced numerous Yeongkkeuljok. Among them, the 2030 generation, who borrowed the maximum loan amount to buy homes, accounts for a high proportion, raising concerns that young people's loan repayments may become difficult.

According to the Bank of Korea, as of the end of last year when interest rate hikes began in earnest, the proportion of vulnerable borrowers among borrowers by age was 6.6% for young people in their 20s and 30s, higher than other age groups (5.8%). The delinquency rate of vulnerable young borrowers also rose rapidly compared to other age groups, increasing from 5% at the end of Q1 last year to 5.8% by year-end. Vulnerable borrowers are defined as multiple debtors who have borrowed from three or more financial institutions and belong to the bottom 30% in income or have low credit.

Similar reactions are seen in real estate communities. User A, in their early 30s, wrote, "I ended up paying 80% of my salary just in loan interest," adding, "It's impossible to live without tightening my belt." Another user B wrote, "I bought a house two years ago with moving cost loans, jeonse loans, and credit loans, and now I pay 1.6 million KRW monthly. I expect to pay at least 2 million KRW monthly in the second half of the year."

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