I Switched Loans, but the Interest Is Higher... Refinancing Rates Exceed Those for New Loans

Some banks have been offering refinancing loans at higher interest rates than regular new loans. Critics say this undermines the original purpose of refinancing loans, which were introduced to reduce borrowers' interest burdens.
According to data submitted by the Financial Supervisory Service to Park Sung-hoon, a People Power Party lawmaker from Busan Buk-gu Eul and a member of the National Policy Committee, 11 of the 16 banks offering comparable mortgage loans had higher average refinancing rates than average rates for newly originated loans as of July this year.
The gap was largest at iM Bank, where the difference between the rate for newly originated loans and the refinancing rate was 2.33 percentage points. The average rate was 4.84% for new mortgage loans and 7.17% for refinancing loans.
The same rate inversion was also found among the five largest commercial banks. Woori Bank's average rate for new mortgage loans was 4.34%, compared with 4.71% for refinancing loans, a difference of 0.37 percentage points. Nonghyup Bank posted rates of 4.25% and 4.49%, respectively, a gap of 0.24 percentage points, while Bank of Hope recorded rates of 4.29% and 4.47%, a difference of 0.18 percentage points.
Personal credit loans showed a similar pattern. Of the 16 banks that could be compared as of July, 10, or 62.5%, had higher average refinancing rates than average rates for regular new personal credit loans. Gwangju Bank Headquarters recorded the largest gap: the rate for new personal credit loans was 8.21%, while the refinancing rate was 9.50%. Toss Bank's rate rose from 6.13% to 7.36%, and Busan Bank's increased from 5.56% to 6.78%, with each showing a difference of 1.22 percentage points.
Bank of Hope also had an average rate of 4.70% for new personal credit loans, compared with 5.72% for refinancing loans, which was 1.02 percentage points higher. The rate at iM Bank rose from 6.99% to 7.92%, a 0.93-percentage-point increase; Nonghyup Bank's rose from 4.91% to 5.59%, a 0.68-percentage-point increase; Shinhan Bank's rose from 5.26% to 5.83%, a 0.57-percentage-point increase; and KB Kookmin Bank's rose from 4.91% to 5.36%, a 0.45-percentage-point increase.
Refinancing loans were introduced to promote interest-rate competition among financial companies and reduce borrowers' interest burdens. However, more than half of the banks charged higher refinancing rates than regular new-loan rates for both mortgage loans and personal credit loans.
Banks, however, say it is difficult to conclude that refinancing rates were set higher based solely on the difference in interest rates, since borrowers' creditworthiness, the value of collateral and product structures differ between regular new loans and refinancing loans.
[email protected] Seo Ji-yoon Reporter