As the Bank of Korea signals the possibility of consecutive interest rate hikes, projections indicate that mortgage rates could surpass 8% in the second half of the year. This situation is expected to increase the financial burden on borrowers who have invested in stocks or real estate using loans, commonly referred to as the "debt investment group" and "all-in group."
According to financial sector data released on June 7, the mixed-rate mortgage rates from the five major banks—KB Kookmin, Shinhan, Hana, Woori, and NH Nonghyup—were recorded between 4.39% and 7.33% as of June 5. This marks an increase of 0.33 percentage points at the upper end compared to the previous month, when rates ranged from 4.40% to 7.00%. Compared to the end of last year, when rates were between 3.93% and 6.23%, the upper limit has risen by 1.10 percentage points. This is the first time since October 2022 that mortgage rates have exceeded 7.3%.
The rise is attributed to a 0.4 percentage point increase in the five-year bank bond rate, which serves as the benchmark for fixed rates, climbing from 4.019% to 4.413%. The five-year bank bond rate has now surpassed 4.4% for the first time in approximately two years and seven months since November 2023.
The variable-rate mortgage rates from the five major banks also increased, now ranging from 3.83% to 6.23%, with the upper limit rising by about 0.5 percentage points compared to six months ago. Variable-rate loans adjust their rates every six months, meaning that increases in the base rate will be reflected more quickly.
Credit loan rates are also climbing rapidly, with the five major banks reporting rates between 4.31% and 5.93% for top-tier, one-year loans. The upper limit has risen by 0.31 percentage points in the past month, nearing the 6% mark, influenced by a 0.385 percentage point increase in the one-year bank bond rate during the same period.
If the Bank of Korea proceeds with anticipated rate hikes later this year, the upper limit for mortgage rates could exceed 8%. Market expectations suggest that the Bank will raise the base rate from 2.50% to 3.00% in two increments, in July and October. The consumer price index rose by 3.1% in May, the highest since March 2024, and the Korean won surpassed 1560 against the dollar during trading, reinforcing the likelihood of rate hikes.
The challenge lies in the burden faced by investors using leverage. As more individuals take out loans to invest amid a booming stock market, rising interest rates could significantly increase their financial obligations. Should market volatility increase, the risks for these leveraged investors could also escalate.
Borrowers utilizing mortgages through all-in strategies are also at risk. If mortgage rates approach 8%, they could face additional interest burdens amounting to millions of won. For those who have maximized leverage to acquire assets, rising rates could directly lead to deteriorating cash flow.
A banking industry official stated, "Market rates are moving ahead of actual base rate increases, increasing the burden on borrowers. In a rising rate environment, the risks associated with leveraged investments become more pronounced."
* This article has been translated by AI.
Copyright ⓒ Aju Press All rights reserved.