Gap Between Mortgage and Credit Loan Rates Narrows Again... Some Banks See Rate Reversal

Total Household Loan Management Focused on Real Estate
Mortgage Loan Rates Rise, While Credit Loan Rates for High-Credit Borrowers Fall
Average Rate Gap Narrows to 0.07 Percentage Points, the Lowest This Year
Lower Credit Loan Rates Lead to Nearly 1 Trillion Won Increase in Outstanding Credit Loans in Just One Month

The gap between mortgage loan rates and credit loan rates is narrowing once again. As banks are focusing their household loan regulations and total loan management primarily on real estate, mortgage loan rates have continued to rise, while credit loan rates have declined. In some banks, there has even been a reversal, with credit loan rates becoming lower than mortgage loan rates. This phenomenon is particularly pronounced for high-credit borrowers, as banks have concentrated on lending to those with low delinquency rates, resulting in the smallest rate difference for high-credit customers so far this year.

According to the Korea Federation of Banks on November 10, the average credit loan rate for the highest credit tier (score 951-1000) at the five major banks (KB Kookmin, Shinhan, Hana, Woori, and NH Nonghyup) stood at 4.17% last month. This is just 0.07 percentage points higher than the mortgage loan rate for the same credit tier, which was 4.10%. This is the lowest gap recorded this year. Compared to the previous month, when the rate difference was 0.13 percentage points, the gap has almost halved in just one month.

The rate difference between mortgage loans and credit loans for the top credit tier started at 0.59 percentage points in January this year and remained in the 0.2 percentage point range until June. However, after the household loan regulation was announced on June 27, the gap narrowed to 0.09 percentage points in July. Subsequently, the gap widened again to 0.1 percentage points in August and 0.13 percentage points in September, but last month, the gap began to shrink once more.

At KB Kookmin Bank and NH Nonghyup Bank, there was even a reversal, with credit loan rates falling below mortgage loan rates. At KB Kookmin Bank, the credit loan rate for the top credit tier was 3.94%, which is 0.07 percentage points lower than the mortgage loan rate of 4.05%, exerting the greatest influence in reducing the average rate gap. This reversal has continued for two consecutive months since September. At NH Nonghyup Bank, the credit loan rate (4.23%) also fell below the mortgage loan rate (4.25%). In addition, the rate gap narrowed at all other banks compared to the previous month: Shinhan Bank from 0.21 to 0.19 percentage points, Woori Bank from 0.2 to 0.13 percentage points, and Hana Bank from 0.17 to 0.13 percentage points.

Typically, mortgage loan rates are lower than credit loan rates because mortgages are secured by tangible assets such as homes, resulting in lower repayment risk. In particular, mortgages backed by safe assets like apartments generally have lower rates than unsecured credit loans. Banks usually expect mortgage loan rates to be 1 to 2 percentage points lower than credit loan rates.

Nevertheless, the recent narrowing or reversal of the rate gap appears to be the result of the government's successive household loan regulations. As the government has demanded that banks focus on managing household debt through mortgage loans, banks have been reluctant to lower mortgage loan rates. The average mortgage loan rate for the top credit tier at the five major banks hit a low of 3.9% in June and has been rising for five consecutive months.

Banks, facing stricter requirements for issuing mortgage loans, have also focused on credit loans to high-credit borrowers with low risk weights as part of their risk management strategies. In fact, when looking at the overall average rate difference between mortgage and credit loans, it reached 0.174 percentage points in October, higher than July (0.096 percentage points) and August (0.128 percentage points). Given that the rate difference between credit tiers for mortgage loans is not significant, this suggests that rate cuts have been concentrated on high-credit borrowers with low delinquency risk. In the case of KB Kookmin Bank, which saw a rate reversal, the fact that it still had room within its household loan quota compared to other banks also appears to have been a factor.

A banking industry official stated, "After the authorities issued guidance not to control household loans through rates any longer, banks have virtually left credit loan rates untouched. As a result, the impact of the base rate cuts is being fully reflected. In contrast, for mortgage loans, the increases in additional rates implemented in the first half to control demand are now being applied in the second half, making it appear as though mortgage loan rates are continuing to rise."

There are also observations that the relatively lower credit loan rates are driving increased demand, thereby fueling the growth of household credit loans. As of the end of October, the outstanding balance of credit loans stood at 104.733 trillion won, up by 925.1 billion won from the previous month. After increasing by 110.3 billion won in August and then decreasing by about 271.1 billion won in September, the balance is once again on the rise.

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