"Bond Market Turmoil Hits Yeongkkeuljok Too"…Mortgage and Credit Loans Reach 7% Trend (Comprehensive)

Bond Market Tightens Due to Legoland Incident... Bank Bond Yields Surge
Chain Effect Causes Commercial Bank Loan Rates to Rise 0.2~0.5%p Within a Week

[Asia Economy Reporter Sim Nayoung] As the short-term bond market became unstable due to the default of Gangwon-do Legoland ABCP (Asset-Backed Commercial Paper), the impact also spread to the "young all-in" borrowers. With bank bond yields soaring, the mortgage loans, credit loans, and jeonse deposit loans from commercial banks, which move in tandem with these yields, all saw interest rates rise simultaneously.

According to the banking sector on the 25th, the loan interest rates of the five major banks (KB Kookmin, Shinhan, Hana, Woori, NH Nonghyup) increased by 0.2 to 0.5 percentage points (p) within a week. On that day, fixed-rate mortgage loan interest rates surged to 5.35?7.41%, and variable-rate mortgage loans rose to 4.82?6.49%. Credit loans recorded 5.78?6.96% for the 6-month term. Jeonse deposit loan interest rates also climbed to 4.76?6.83%.

The reason loan interest rates keep rising is that they are linked to bank bond yields. For example, the 6-month credit loan interest rate is based on the 6-month bank bond yield, and the fixed-rate mortgage loan interest rate is calculated based on the 5-year bank bond yield. Variable-rate mortgage loans use the COFIX (Cost of Funds Index), announced monthly, as a benchmark, but since bank bond yields rise, COFIX also tends to increase, making it impossible to escape the influence of bond yields.

A commercial bank official explained, "As funds are not supplied smoothly, the short-term bond market froze, causing bank bond yields to jump, and this effect directly impacted loan interest rates. Both mortgage and credit loan interest rates have become the norm at around 7%."

The rise in bank bond yields is fierce. The AAA-rated 6-month bank bond yield was 4.752% as of the 24th, marking the highest point in 13 years and 9 months since January 5, 2009 (4.27%). Although the government announced it would inject liquidity of 50 trillion won plus α into the short-term bond market, the yield rose further compared to the previous business day on the 21st (4.231%) without much effect.

The AAA-rated 5-year bank bond yield was 5.356%, slightly down from the previous business day (5.467%). However, compared to the 2% range in October last year, it is still soaring. The yield reaching the 5% range is the first time in 12 years and 3 months since July 2010.

As interest rates rise, the worries of the "young all-in" borrowers who had maxed out their mortgage and credit loans when buying homes deepen. Lee Myungseop (46), a corporate employee who bought an apartment in Ahyeon-dong, Mapo-gu, Seoul, earlier this year, said, "The '6% interest rate' I had only heard about has become my reality. I took out a 5% variable-rate mortgage loan in April, and I even took a credit loan to pay taxes when buying the house, but when I received the new interest rate notice in October, all rates rose to the 6% range. The monthly principal and interest repayment alone exceeds 4 million won, which is about the salary of an average person."

When the U.S. Federal Reserve (Fed) and the Bank of Korea raise their benchmark interest rates in November, loan interest rates are expected to rise again. A financial sector official said, "When the benchmark interest rate rises, bond yields increase, and loan interest rates also rise accordingly. Mortgage and credit loan interest rates at banks could reach around 8% by the end of the year."

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