People who took out mixed mortgage loans that switch from a five-year fixed rate to a variable rate under the Moon Jae-in administration in 2021 are expected to see their interest burdens rise by about 1.5 times this year. Market rates have climbed on the possibility of a Bank of Korea benchmark 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 the fixed (mixed and step-up) mortgage loan rates at the five major commercial banks—KB Kookmin, Shinhan, Hana, Woori, and NongHyup—stood at 4.12% to 6.72% annually. In January 2021, the mixed mortgage loan rates at these banks were 2.5% to 4.0% annually. The upper end of the range has risen by 2.72 percentage points.
At the time, as part of efforts to improve household lending structures, the government pushed a policy to expand fixed rates and recognized mixed mortgages as fixed-rate products. The government presented target ratios for fixed rates to the banking sector, and banks lowered mixed mortgage rates to the mid-to-high 2% range annually to meet those targets and expanded sales. Borrowers who took out mixed mortgages then must switch to variable rates or refinance into other products when their terms mature this year.
Given that the current average fixed mortgage rate is around 5% annually, these borrowers' interest burdens are expected to increase. For example, if someone borrowed 500 million won in 2021 at an annual rate of 2.5% (30-year maturity with equal principal and interest repayment), the monthly payment so far would be about 2.28 million won, but if the rate rises to 5% annually, the monthly payment increases to about 3.3 million won.
In 2021, amid a booming housing market, mortgage loans in the financial sector increased by 5.69 trillion won. Of this, mixed mortgages are estimated at around 1.6 trillion won. It was a period when many younger buyers engaged in "yeongkkeul" ("pulling together every last bit of borrowing") home purchases. 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 Sept. 2021, the share of apartment purchases by people in their 30s in Seoul hit a record high of 38.85%.
Banks have raised early repayment fees this year, making it difficult to refinance. KB Kookmin Bank raised 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 raised it 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 appear to be moderating the pace of the fixed-rate expansion policy. Early each year, a target share for fixed rates is set, but so far there has been no such move." said.