"A 300 Million Won Mortgage Now Costs 1.99 Million Won a Month in Interest"...Loan Rates Break Through 7%, Leaving Highly Leveraged Borrowers and Retail Investors Reeling

[The Financial News] As lending rates at the five major commercial banks continue to rise, the interest burden on highly leveraged borrowers and retail investors is growing.

According to the financial sector on the 11th, the fixed-rate five-year mortgage rates offered by the five major banks — KB Kookmin Bank, Shinhan Bank, Hana Bank, Woori Bank and Nonghyup Bank — were estimated at 4.51% to 7.50% as of the previous day. That is up 0.25 to 0.40 percentage points in less than two weeks from 4.26% to 7.10% at the end of last month. The lower end of rates at some banks has already climbed above 5%.
The rise in lending rates is being directly driven by higher yields in the bond market. At present, concerns over instability in the Middle East and growing fears of U.S. monetary tightening are weighing on the market. Expectations are also emerging that the Bank of Korea may raise rates in the second half of the year.
In the Seoul bond market, the yield on the 3-year Korean Treasury bond stood at 3.881% as of the previous day, up 0.025 percentage points from the prior trading day. The five-year bank bond yield, which serves as the benchmark for fixed mortgage rates, also rose to 4.394%, up 0.187 percentage points from the end of last month.
In response, banks are also raising variable mortgage rates one after another. As fixed mortgage rates rise, demand has shifted toward variable-rate mortgages, which are relatively cheaper, prompting banks to lift rates and make borrowing more difficult.
Nonghyup Bank recently raised its six-month variable rate by 0.2 percentage points. Kookmin Bank also cut the preferential rate for the six-month variable-rate option under its KB Star Apartment Mortgage Loan, based on New COFIX on Outstanding Balance, by 0.2 percentage points. When preferential rates are reduced, borrowing costs rise accordingly. Hana Bank also plans to raise its New COFIX-based variable rate next week.

Interest rates on overdraft loans are also trending upward. According to KFB, the average rate on new overdraft loans extended by the five major banks in April was 4.85%, up 0.06 percentage points from the end of last year. The average overdraft rate at the three internet-only banks reached 6.26%. At KakaoBank Corp, the average rate was 6.99%, close to 7%.
Rates on ordinary personal loans are also rising. As of the previous day, one-year personal loan rates at the five major banks were estimated at 4.35% to 6.15%, with the upper end already above 6%.
As lending rates continue to climb, the interest burden on highly leveraged borrowers and retail investors is increasing. For example, if a 300 million won mortgage is taken out at 4% over 30 years under equal principal and interest repayments, the monthly payment would be about 1.43 million won. If the rate rises to 6%, the monthly payment increases to about 1.79 million won. At 7%, it rises to about 1.99 million won.
If a 100 million won personal loan rises from 4% to 7%, annual interest would increase from 4 million won to 7 million won. On a monthly basis, that means an additional burden of about 250,000 won.
gaa1003@fnnews.com Ahn Ga-eul Reporter