"My salary is the same—where am I supposed to find an extra 500,000 won every month?" ... Highly leveraged borrowers cry out as mortgage rates surge

[Financial News] Borrowers whose mortgage loans are up for renewal face tens of thousands of won in additional monthly interest payments, even though their salaries remain unchanged. 

According to industry sources on the 17th, the four major commercial banks—KB Kookmin Bank, Shinhan Bank, Hana Bank and Woori Bank—issued a total of 12.8875 trillion won in new five-year fixed-rate mortgages between September 2021 and August 2022.
The interest rate on a five-year fixed-rate mortgage remains fixed for five years after the loan is issued before switching to a variable rate. If these borrowers renew their loans at the current median fixed mortgage rate of 5.9% annually at the four major banks, the additional interest alone is estimated to reach 266 billion won a year. Compared with the 494.4 billion won in annual interest they previously paid, that represents a 53.3% increase.
As a result, borrowers who took out loans five years ago are beginning to face higher interest payments one after another.
The average annual rate on five-year fixed-rate mortgages was around 3.11% in September 2021. If a borrower who took out a 300 million won loan at that rate and repaid the principal and interest in equal installments renews the loan at the current rate of around 5.9%, the monthly payment will rise from approximately 1.28 million won to 1.78 million won. 
As the burden of fixed-rate loans has surged, more bank customers are opting for variable rates. According to the Bank of Korea (BOK), variable-rate loans accounted for 68.3% of newly issued mortgage loans as of July, more than six times the 11.2% recorded in July last year.

The Korea Economic Daily reported that forecasts have emerged that fixed mortgage rates could exceed 8% annually. The upper end of fixed mortgage rates at the five major banks—KB Kookmin Bank, Shinhan Bank, Hana Bank, Woori Bank and Nonghyup Bank—has risen from 6.23% annually at the end of last year to 7.29% recently, an increase of 1.06 percentage points.
The biggest reason mortgage rates have risen is the increase in the policy rate. The yield on 10-year United States Treasury securities (U.S. Treasuries), which serve as a benchmark for global interest rates, surpassed 5% during trading on the 14th local time. It also climbed as high as 5.041% on the 15th. That was the highest level since July 2007.
When the policy rate rises, banks' funding costs increase, inevitably pushing up lending rates as well. The Federal Reserve System (Fed) raised its policy rate by 0.25 percentage points on the 16th local time, bringing it to a range of 3.75% to 4.0% annually. This was the first policy-rate hike in three years and two months since July 2023. South Korea had moved ahead of the United States by raising its policy rate twice, in July and August this year, bringing it to 3.0%.
As the situation has deteriorated, mortgage delinquency rates have also risen. According to data that Park Sung-hoon, a lawmaker from the People Power Party, obtained from the Financial Supervisory Service, the overdue balance on mortgages at South Korean banks increased 21%, from 644.3 trillion won at the end of 2022 to 779.2 trillion won at the end of June this year. Over the same period, the amount of principal and interest overdue by at least one month more than doubled, surging from 1 trillion won to 2.2 trillion won.
[email protected] An Ga-eul Reporter