"Monthly Interest Alone 2.2 Million Won"…Yeongkkeul Borrowers' 'March of Hardship'

KOFIX Exceeds 4% for the First Time in 12 Years and 10 Months
Mortgage Loan Rates Rise Again on the 16th, Approaching 8%
BOK to Decide Base Rate in January Next Year
Borrowers with Maximum Loans Face Continued Hardship Next Year

[Asia Economy Reporter Sim Nayoung] Mortgage loan interest rates did not stop rising until the last month of this year. This is because the newly issued COFIX (COFIX: Cost of Funds Index), which commercial banks use as a benchmark when setting variable mortgage loan interest rates, rose by 2.65 percentage points over the past year.

The COFIX announced by the Korea Federation of Banks on the 15th (as of November) rose to 4.34%. The COFIX was 1.69% in January (based on December 2021), showing a steep upward trend since then. This is the first time COFIX has exceeded 4% since it was first disclosed in January 2010. After 12 years and 10 months, the variable mortgage loan interest rate hit a record high, meaning that the interest burden on the Yeongkkeul group has also increased accordingly.

Variable Mortgage Loan Interest Rate Nearing 8%, Yeongkkeul Group Tightening Their Belts

"From today, the interest alone exceeds 2 million won per month. The end of the year is even tougher. I have no choice but to tighten my belt and repay the principal as quickly as possible." Cha Sangmin (39), who bought an apartment in Ramian, Gongdeok, Mapo-gu, Seoul two years ago, felt a chill upon receiving a text message that the interest rate on his 470 million won mortgage loan would rise to 6.49% starting on the 16th. The interest rate on his 100 million won unsecured loan has already risen to 7.47%.

After calculating, the combined interest on the two loans alone amounts to 2.22 million won per month. Including the principal, he has to repay 3.6 million won every month. Cha said, "When I first took out the loan in December 2020, the interest rate was in the 3% range. The house price is falling, but the interest is rising. At that time, I never imagined such a difficult period would come."

The variable mortgage loan interest rate at commercial banks is on the verge of reaching 8%. As of the 16th, the variable mortgage loan interest rates of the five major banks (KB Kookmin, Shinhan, Hana, Woori, NH Nonghyup) reflected the previous day's COFIX increase and recorded between 5.19% and 7.72%. Compared to the 3% to 5% range in January this year, this is a significant jump. Although financial authorities pressured banks to lower their loan spread rates, and banks also joined this effort, the sharp rise in market interest rates has made it insufficient for consumers to feel relief, according to the financial sector.

Banks Lower Loan Spreads, but Interest Burden Expected to Increase Next Year

Nevertheless, commercial banks are highly likely to implement another round of loan spread rate cuts soon. Financial Supervisory Service Governor Lee Bokhyun mentioned on November 28 that "in exceptional situations, financial authorities should play their role even if they receive some criticism" regarding interest rate intervention, indicating that they are currently monitoring the situation.

A representative from a commercial bank said, "We are internally reviewing measures to adjust interest rates by lowering loan spreads and increasing preferential rates." Woori Bank announced earlier this month that it would lower jeonse loan interest rates by up to 0.85 percentage points, and NH Nonghyup also plans to reduce jeonse loan interest rates by up to 1.1 percentage points starting in January, both measures coming from this context.

The 'march of hardship' for the Yeongkkeul group is expected to continue next year. Due to the impact of the Federal Open Market Committee (FOMC) implementing a big step (a 0.50 percentage point increase in the base rate) on the 14th, the Bank of Korea is also compelled to continue raising the base rate into next year. When the Bank of Korea raises the base rate, commercial bank loan and deposit rates also rise accordingly. The Bank of Korea's first monetary policy meeting to decide the base rate next year will be held on January 13.

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