People who took out mixed-type mortgage loans under the Moon Jae-in administration in 2021—with a fixed rate for five years that then switches to a variable rate—are expected to see their interest burden rise about 1.5 times this year. That is because market rates have climbed on the possibility of a Bank of Korea base rate hike, pushing the lending rate more than 2 percentage points higher than at the time.
According to the financial sector on the 27th, as of the 23rd, fixed-rate (mixed/cycle type) mortgage loan rates at the five major commercial banks—KB Kookmin, Shinhan, Hana, Woori, and NongHyup—stand at 4.12% to 6.72% per year. In January 2021, mixed-type mortgage loan rates at these banks were 2.5% to 4.0% per year. The upper end has risen by 2.72 percentage points.
At the time, as part of efforts to improve household loan structures, the government pushed to expand fixed rates and recognized mixed-type mortgage loans as fixed-rate products. The government presented target ratios for fixed rates to the banking sector, and banks, to meet them, lowered mixed-type mortgage loan rates to the mid-to-high 2% range per year to boost sales. Borrowers who took out mixed-type mortgage loans then must switch to variable rates or refinance into other products when maturities come due this year.
Given that the current average fixed-rate mortgage loan rate is around 5% per year, these borrowers' interest burden is expected to increase. For example, if 500 million won was borrowed in 2021 at an annual rate of 2.5% (30-year maturity, equal principal and interest repayment), the monthly payment has been about 2.28 million won; if the rate rises to 5% per year, the monthly payment increases to about 3.30 million won.
In 2021, amid a booming housing market, mortgage loans in the financial sector increased by 5.69 trillion won. Of that, mixed-type mortgage loans are estimated at around 1.6 trillion won. It was a period when many younger people bought homes through "yeongkkeul" ("scraping together every last bit of borrowing"). According to the Korea Real Estate Board (REB), the share of apartment purchases in Seoul by people in their 30s jumped from 28.8% in 2019 to 36.4% in 2021. In September 2021, the share of apartment purchases in Seoul by people in their 30s hit a record high of 38.85%.
Banks have raised early repayment fees this year, making it harder to refinance loans. KB Kookmin Bank increased its early repayment fee rate by 0.17 percentage points, from 0.58% to 0.75%; Woori Bank raised it from 0.73% to 0.95%; and NongHyup Bank from 0.64% to 0.93%.
A financial-sector official said, "Since late last year, as the lending rate has risen sharply, the financial authorities also seem to be moderating the pace of the fixed-rate expansion policy. A target share for fixed rates is set early each year, but so far there has been no such move." said.