Mortgage Rates Top Unsecured Loan Rates at South Korea’s Five Biggest Banks

Mortgage rates at South Korea’s five biggest banks — KB Kookmin, Shinhan, Hana, Woori and NH NongHyup — have risen above unsecured personal-loan rates across the board, upending the usual pricing rule that secured loans cost less. The shift is increasingly being seen as a new normal, leaving borrowers facing maturities or rate resets weighing whether to use cheaper unsecured loans to pay down part of their mortgages.
 
As of Feb. 4, the banks’ five-year fixed or hybrid mortgage rates ranged from 4.13% to 6.73% annually. Unsecured loans tied to a six-month floating rate were lower, at 3.84% to 5.42%. That put unsecured loans 0.29 percentage points cheaper at the low end and 1.31 points cheaper at the high end — a clear “rate inversion.”
 
Typically, mortgages carry lower rates because collateral reduces the risk of loss. But all five banks are now charging more for mortgages than for unsecured credit.

A key driver is diverging market rates used as loan benchmarks. Over the past year, bank bond yields moved in opposite directions by maturity. The six-month yield slipped to 2.824% as of Feb. 3 from 2.994% in early February last year, while the five-year yield climbed to 3.766% from 2.983% — up nearly 1 percentage point. Different expectations across maturities helped push the rates apart.
 
Banks’ tighter management of household lending is reinforcing the inversion. Financial authorities changed capital rules this year to require banks to hold more risk-weighted assets, or RWA, when issuing new mortgages. The minimum RWA weight for mortgages rose to 20% from 15%, meaning banks’ financial soundness can deteriorate more even if they lend the same amount as in past years.
 
To protect capital, banks are under pressure to curb mortgage supply and raise entry barriers, including by increasing add-on rates. Woori Bank has already raised add-on rates by 0.30 to 0.38 percentage points since Feb. 2 for apartment-backed mortgages and its “Woori Jeonse Loan” product, citing more efficient household-debt management. Other banks are also expected to follow with similar increases.
 
Mortgage rates may not fall easily as overall household lending is expected to tighten further. Financial Services Commission Chairman Lee Eok-won said the banking sector’s household-loan growth rate was 1.8% last year and that authorities plan to set this year’s management target lower, adding that a separate management target would be set for mortgages.
 
The unusual pricing has complicated decisions for borrowers nearing maturity or a rate change. Taking out a cheaper unsecured loan to repay part of a mortgage could reduce interest costs, but it is constrained by debt-service ratio rules and a cap that limits unsecured borrowing to 100% of annual income. With top mortgage rates nearing 7%, some borrowers have said they are afraid of upcoming rate resets.
 
A banking industry official said the inversion is unlikely to be resolved soon because mortgage rates have become more sensitive to policy factors. The official added that banks will keep reviewing ways to reduce mortgage supply, also in light of the government’s comments about normalizing real estate finance.