Banks Step Up Support for Vulnerable Borrowers Amid Rising Interest Burden

[Asia Economy Reporter Song Hwajeong] As interest rates continue to rise, borrowers' interest burdens are increasing, and banks have begun efforts to alleviate these burdens.

According to the financial sector on the 3rd, Shinhan Bank recently introduced the 'Mortgage Loan Interest Deferral Program' to ease the interest burden for customers holding mortgage loans.

The target of this interest deferral program is customers holding mortgage loans with a principal balance of 100 million KRW or more under principal repayment, whose loan base interest rate has increased by 0.5 percentage points or more compared to the end of last year. Applicants can defer loan interest up to 2.0 percentage points for 12 months, corresponding to the difference between the loan base interest rate at the time of application and the base rate at the end of last year, and only pay the principal and interest excluding the deferred interest. Notably, after the 12-month deferral period ends, the deferred interest can be repaid in installments over 36 months without any additional interest charges on the deferred interest. For example, assuming the total loan interest rate is 6.0% (COFIX 3.98% + spread 2.02%) at the time of applying for interest deferral next month, and the COFIX new rate at the end of last year was 1.55%, the base interest rate difference is 2.43 percentage points. In this case, if the interest deferral is applied for, interest up to 2.0 percentage points of the 2.43% difference can be deferred, and the borrower pays interest at a total loan rate of 4.0% for 12 months (the total loan rate may vary if the base rate or transaction performance changes), and the deferred interest (2.0 percentage points) is repaid in installments over 36 months after 12 months.

Since the end of May, Shinhan Bank has been continuously supporting vulnerable borrowers during the interest rate hike period by measures such as extending the loan period by 5 years at the existing interest rate to reduce monthly principal and interest payments, lowering mortgage loan interest rates exceeding 5%, exempting additional interest rates when agreeing to interest rate caps on mortgage loans, and allowing a 2-year fixed interest rate option for jeonse deposit loans.

Hana Bank has been implementing a support measure for vulnerable borrowers who repay loan principal with interest exceeding 6% annually since the 14th of last month. The interest reduction program for borrowers with good repayment records targets vulnerable borrowers with low credit scores or multiple debts. Those eligible include low-credit borrowers with a Korea Credit Bureau (KCB) credit score of 629 or below, or multiple debtors with a total debt service ratio (DTI) of 80% or more and a KCB credit score of 697 or below who have loans from three or more financial institutions. For borrowers subject to extension of credit loans with interest exceeding 6% annually, the amount of interest exceeding 6% is used as a resource to automatically repay the principal of the relevant loan monthly within a maximum range of 3%.

[Image source=Yonhap News]

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