"Earning to Pay Off Loans and Done" Mortgage Borrowers Using All Assets Sigh Amid Soaring Interest Rates

Year-End Mortgage Loan Interest Rates Expected to Reach 7% Annually

As interest rates have recently risen, sighs are growing deeper among people in their 20s and 30s who have stretched their finances to buy homes. Some predict that the maximum interest rate on mortgage loans will exceed 7% within the year.
[Image source=Yonhap News]

[Asia Economy Reporter Han Seung-gon] "It's really tough, is there no way out?"

According to the financial sector on the 23rd, the Bank of Korea (BOK) implemented a 'big step' by raising the base interest rate by 0.5 percentage points (p) at once on the 13th, and mortgage loan interest rates are expected to rise as well. As a result, buyers who stretched their finances to purchase homes are facing deep concerns. This is because the monthly repayment amount inevitably increases with the interest rate hike.

In particular, according to a BOK survey, household loans for people in their 20s and 30s amounted to 475.8 trillion won as of the end of last year, an increase of 35.2 trillion won compared to a year earlier. Among them, the proportion of vulnerable borrowers was 6.6%, higher than the average of other age groups (5.8%). This is why the 'big step' is expected to deal a heavy blow to the 20-30s young borrowers who stretched their finances during the interest rate hike period.

A vulnerable borrower is defined as a multiple debtor who has borrowed from three or more financial institutions and is either a low-income borrower in the bottom 30% income bracket or a low-credit borrower with a credit score of 664 or below. Signs of loan delinquency are already appearing. The delinquency rate on high-interest loans among vulnerable borrowers in their 20s increased by 31.0% last year (from 7.4% to 9.7%). For those in their 30s, it also rose by 27.7% (from 8.3% to 10.6%).

An apartment complex area in Seoul. The photo is unrelated to specific expressions in the article. [Image source=Yonhap News]

Kim, a 30-something office worker who recently purchased a home by stretching his finances, said, "I believed the saying 'today is the cheapest day' and pushed myself to buy a house," adding, "Just thinking about the interest I have to pay every month makes me feel frustrated." Another company employee in his late 30s, Park, also lamented, "I will somehow repay it, but the burden is too heavy."

In the financial sector, there are forecasts that the maximum fixed-rate mortgage interest rate at commercial banks will exceed 7% within the year. According to data analyzed by the real estate platform company Zigbang on apartment financing costs, the monthly loan repayment for a medium-sized apartment of 84㎡ in Seoul is 2.91 million won (assuming a 30-year loan term with equal principal and interest payments). In particular, for medium-sized apartments in Seoul, the ratio of loan repayment to average disposable income is analyzed to approach the 70% level.

As the sighs of ordinary people who purchased homes through excessive borrowing deepen, the government has proposed measures to reduce interest burdens. According to the 'Financial Sector Livelihood Stability Task Progress and Plan' announced by the Financial Services Commission on the 14th, the financial authorities will support a total of 45 trillion won to reduce the interest burden of ordinary people who purchased homes with 'stretched loans' by converting variable-rate mortgage loans into fixed-rate loans. The fixed-rate loan interest is expected to be in the low to mid-4% range. For low-income youth, the interest rate will be further reduced by 0.1 percentage points. The maximum loan term will be extended to 40 years for private financial companies and 50 years for policy financial institutions.

Regarding the interest burden of ordinary people who purchased homes with debt, the Safe Conversion Loan, which converts variable-rate mortgage loans into fixed-rate loans, will be supplied on a scale of 45 trillion won by next year. This year, the existing supply plan of 20 trillion won will be increased to 25 trillion won.

Kim Ju-hyun, chairman of the Financial Services Commission, said, "The primary responsibility for debt issues lies with the financial companies that lent the money and the borrowers," adding, "Financial companies must take responsibility by assessing the credit status of borrowers, helping where possible, and referring cases they cannot assist to the Credit Recovery Committee, making appropriate choices."

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