Mortgage Loan Rates Already Surpass Top 7% "Upward Trend to Continue at Least Until Year-End"

Fixed Rate Likely to Exceed 8% and Variable Rate 6% Within the Year

[Asia Economy Reporter Yu Je-hoon] Inflation and the resulting base interest rate hikes to curb it have caused market loan interest rates to soar. The financial sector expects that base interest rate hikes will continue in the second half of the year in South Korea and other countries worldwide, so this trend is likely to persist at least until the end of the year.

According to the financial sector on the 18th, the fixed (hybrid) interest rate for Woori Bank's mortgage loan product 'Woori Apartment Loan' was recorded at 5.51~7.21% as of the previous day. The upper limit (7.10%) rose by 0.11 percentage points compared to just one day earlier.

The mortgage loan interest rate surpassing the 7% range is due to the rapid rise in the 5-year bank bond interest rate, which serves as the benchmark for hybrid mortgage loan rates. According to the Korea Financial Investment Association, the 5-year AAA-rated bank bond interest rate was 4.147% (average market price) as of the previous day, marking the highest level in about 10 years since 2012.

The situation is no different for variable mortgage loan interest rates. The upper limit of variable mortgage loan rates at the four major commercial banks rose by 0.049 percentage points to 5.681% compared to the previous day, approaching the 6% range. The rise in variable interest rates is due to the COFIX (Cost of Funds Index), which serves as the benchmark for variable interest rate loans in the banking sector, increasing by 0.14 percentage points last month to 1.98%, the highest level in over three years since January 2019 (1.99%).

The financial sector expresses concerns that this situation may persist throughout the year. On the 15th (local time), the U.S. Federal Reserve's Federal Open Market Committee (FOMC) implemented a so-called 'giant step' by raising the base interest rate by 75 basis points (1bp=0.01%) to curb inflation. In response, the Bank of Korea is also increasingly likely to take a big step (50bp increase).

This outlook is gaining traction in the market as well. KB Securities recently diagnosed in a report that if the consumer price inflation rate in June reaches around 6%, the Bank of Korea is highly likely to take a big step. They also forecast the year-end base interest rate to be 2.75%. JP Morgan also projected that the Bank of Korea will take a big step next month, followed by 25bp increases in August, October, and November, bringing the year-end base interest rate to around 3.0%.

The financial sector expects that if this scenario continues, by the end of the year or early next year, fixed mortgage loan interest rates will exceed 8%, and variable rates will surpass 6%. The interest burden on borrowers who have taken out household loans, such as the 'Young Kkul-jok' (those who borrowed to the maximum), is expected to intensify. Won Hyun, head of the Economic Research Office at Hyundai Research Institute, stated, "Since the Fed has taken a giant step, the Bank of Korea is likely to take corresponding measures. Inflation will peak this summer and gradually ease from autumn, but due to the continued base interest rate hikes, market interest rates will show an upward trend at least until the end of the year."

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