"Monthly Interest Increased by 700,000 Won After 2 Years"…The Blood-Drying Yeongkkeul Borrowers

New Handling Amount-Based COFIX at 3.98%
Up 0.58 Percentage Points from Last Month

Upper Limit of Variable Rate Mortgage and Jeonse Loan Interest Rates Rises Again
Rises to 7% Range Starting from the 16th

"It’s been two years since I took out the loan, but now the interest I have to pay each month is more than the principal. No matter how much I pay back, the repayment amount keeps increasing... It’s absolutely draining."

Office worker Cha Hyun-joo (43) took out a 400 million KRW loan two years ago when buying an apartment in Namyangju, Gyeonggi Province. At that time, Cha’s mortgage loan had a variable interest rate of 3.10%. The monthly repayment was about 1.7 million KRW (principal 1.1 million KRW + interest 600,000 KRW). The variable interest rate is recalculated every six months. Although the interest briefly dropped during 2021 when rates were at their lowest, since then, every time the bank sent a text message notifying her of the interest rate, her heart would sink as the rates soared sharply. The peak was this morning (the 16th). "The bank told me the loan interest rate has risen to 6.20%. The fixed monthly cost going to the bank is now 2.4 million KRW. It’s winter soon, but I’m worried I might have to live without turning on the boiler. The future looks bleak."

From the 16th, the upper limit of variable interest rates on mortgage loans and jeonse loans at commercial banks rose to the 7% range. This is because the COFIX (Cost of Funds Index), which serves as the benchmark for these rates, recorded its largest-ever increase the day before, approaching 4%, and the shock was fully passed on to market interest rates.

COFIX Interest Rate, the Benchmark for Commercial Banks’ Variable Rates, Hits Record High

The Korea Federation of Banks announced in its ‘October 2022 COFIX’ disclosure that the COFIX based on new contracts last month rose to 3.98%, up 0.58 percentage points from September’s 3.40%. This is the highest level since COFIX disclosures began in 2010 and also the largest increase ever. The Bank of Korea’s big step (a 0.50 percentage point hike in the base rate at once) last month pushed up time deposit rates, which was reflected in the COFIX, and bond yields also rose recently due to incidents like the Legoland crisis, driving COFIX upward.

On the same day, commercial banks immediately raised their mortgage loan interest rates reflecting the COFIX change. KB Kookmin Bank raised its variable mortgage loan rates from 5.18?6.58% per annum to 5.76?7.16% per annum starting the 16th. Jeonse loan rates also rose from 5.24?6.64% to 5.82?7.22%. Woori Bank’s variable mortgage loan rates increased from 5.74?6.54% to 6.32?7.12%, and NH Nonghyup Bank raised theirs from 5.09?6.19% to 5.67?6.77%.

If the Bank of Korea raises the base rate again on the 24th, loan interest rates could approach 8%. When the base rate rises, bond yields increase, which in turn pushes up fixed mortgage loan rates and credit loan rates that use these as benchmark rates. The upper limits of fixed mortgage loan and credit loan rates at the five major banks have already far exceeded 7%.

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