The Bank of Korea's consecutive interest rate hikes are deepening concerns for borrowers. Following the August 13 real estate measures, the financial sector's capacity to handle household loans has increased by approximately 30 trillion won, yet loan interest rates continue to rise. While group loans have seen some relief, individual borrowers are grappling with both lending restrictions and high interest rates, leading to mixed outcomes.
As of August 27, the fixed-rate mortgage interest rates at the five major banks—KB Kookmin, Shinhan, Hana, Woori, and NH Nonghyup—are reported to range from 4.72% to 7.17%. Reflecting recent market interest rate increases, bank loan rates are also on the rise. With the Bank of Korea's latest interest rate hike, upward pressure on loan rates is expected to intensify.
Financial analysts predict that if the Bank of Korea raises interest rates again this year and the upward trend in bank bond rates continues, the upper limit of mortgage rates could approach 8%. According to the Bank of Korea, a 0.25 percentage point increase in mortgage rates would raise the annual interest burden for all borrowers by 1.8 trillion won, averaging 296,000 won per borrower. If the recent 0.50 percentage point increase in the benchmark rate is fully reflected in loan rates, the burden per person would increase by 592,000 won annually.
Variable-rate mortgage rates are also expected to face upward pressure. The COFIX (Cost of Funds Index), which serves as the basis for variable-rate mortgages, reflects the costs banks incur to raise funds through deposits and bank bonds. As market interest rates rise, the cost of funding increases, leading to a delayed rise in variable-rate mortgage rates. Currently, the variable-rate mortgage rates at the five major banks range from 4.20% to 6.46%, with the upper limit reaching the mid-6% range.
The effects of the August 13 measures are manifesting differently among borrowers. Group loans, such as interim and final payments, have been excluded from the household loan increase targets set by banks, alleviating funding concerns for prospective buyers. In contrast, individual borrowers still face the same lending restrictions, compounded by rising interest burdens.
For instance, the final payment loan for the 'D.H. Bangbae' project in Seocho District, Seoul, has seen major banks offer rates in the 4.6% range. With preferential conditions for families with multiple children, rates can drop to as low as 4.566%. This competitive environment among banks for quality group loans contrasts sharply with the fixed-rate mortgages, which can reach as high as 7.17%. While competition has emerged in group loans, individual borrowers find it challenging to avoid high interest rates.
For a loan of 450 million won at an interest rate of 7.17%, borrowers would need to repay approximately 3.04 million won monthly over 30 years. If the rate rises to 8%, the monthly payment would increase to about 3.3 million won, an increase of 260,000 won.
Major banks remain cautious about expanding their general mortgage operations. NH Nonghyup Bank resumed offering variable-rate mortgages on August 20, but other major banks have maintained existing restrictions.
A financial sector official stated, “With the ongoing trend of rising market interest rates and household loan regulations, it will be difficult for loan rates to decrease significantly. General borrowers will continue to face high rates while their borrowing capacity remains largely unchanged for the foreseeable future.”
* This article has been translated by AI.
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