"If You Borrow 300 Million Won, Monthly Payments Reach 2.2 Million Won"... Mortgage Rates Near the 8% Era

The Bank of Korea (BOK) has entered a new phase of monetary tightening, returning to a 3% base rate after back-to-back rate hikes by the Monetary Policy Board. Market interest rates are also climbing sharply. If this trend continues, the upper end of mortgage loan rates at banks could move into the 8% range in the fourth quarter of this year. In particular, commercial banks have sharply increased supply by exempting group loans from overall lending limits under the 8·13 measures. But targets for individual mortgage loans and credit loans have already reached their increased levels, and demand from actual homebuyers is triggering a lending rush.
■ Five-year fixed rates at 4.68% to 7.15%
According to the financial sector on the 30th, mortgage loan rates for five-year fixed-rate, or mixed, products at the five major banks — KB Kookmin Bank, Shinhan Bank, Hana Bank, Woori Bank and Nonghyup Bank — stood at 4.68% to 7.15% as of that day. The upper end, which had surpassed 7.5% last month, has eased somewhat this month, but it still remains above 7%.
After the BOK's Monetary Policy Board raised the base rate by 0.25 percentage point from 2.75% to 3.00% on the 27th, borrowing costs are likely to rise further. The market expects the BOK to hold rates at its October meeting, take a breather, and then deliver another hike in November.
Bank bond yields, which serve as the benchmark for fixed mortgage rates, are also expected to face upward pressure as they begin to reflect the possibility of a base rate hike in advance. If higher bank bond yields are passed through to mortgage rates with a lag, some analysts say the upper end of fixed mortgage rates could exceed 8% before the end of the year.
Borrowers are already feeling the burden of rising interest payments. Last month, the average mortgage loan rate for new bank lending stood at 4.48%, up 0.12 percentage point from 4.36% in the previous month. That was the highest level in two years and eight months, since November 2023, when it reached 4.485%. Fixed mortgage rates rose 0.23 percentage point from the previous month to 4.76%, while variable rates also climbed 0.08 percentage point to 4.35%.
If the upper end of mortgage rates rises to 8%, repayment pressure on borrowers will increase further. For example, if a borrower takes out 300 million won at an annual rate of 8% over 30 years under equal principal and interest payments, the monthly repayment would be about 2.2 million won. Under the same terms, a borrower paying 4% interest would owe about 1.43 million won a month. That means the gap in monthly payments would widen to as much as 770,000 won.
■ Banks unable to lower the barrier for individual loans
The problem is not just interest rates. The hurdle for borrowing remains high. On the 13th, financial authorities raised this year's household lending growth target from 1.5% to 3%. In response, banks are channeling the additional lending capacity they secured mainly into group loans. But for ordinary mortgage and credit loan borrowers, the change is barely noticeable.
There are also discussions about expanding the five major banks' annual household lending growth target by 60%. The total target tentatively allocated by financial authorities is reportedly still under detailed review.
Previously, household lending balances could increase by only about 434 billion won a year. If the limit is expanded by 60%, the increase could reach about 698 billion won. That would mean an additional 264 billion won in combined targets for the five major banks. Some items, including group loans, are excluded when calculating performance under overall lending management.
This follows the financial authorities' decision on the 13th to raise banks' annual household lending growth management target from 1.5% to 3.0%. With the revised target, each bank's growth rate has risen by 0.3 to 0.4 percentage point, from around 0.6% to 0.7% at the end of last year to 1.0% to 1.1%.
Some banks that had already exceeded their previous targets were reportedly penalized and assigned relatively smaller additional quotas. Even so, the extra room banks can actually use is limited when the cumulative rise in household lending is taken into account. As of the 27th, household lending balances at the five major banks, excluding policy loans, stood at 651.6377 trillion won, up 6.6677 trillion won from the end of last year, when the figure was 644.97 trillion won. Compared with the newly set growth target of 6.98 trillion won, only about 31.23 billion won of room remains.
[email protected] Park Moon-soo Lee Hyeon-jeong Reporter