[비즈한국] A couple in their mid-30s, surnamed A, purchased an apartment in Dongjak-gu, Seoul, for about 1 billion won in early April. Although they are scheduled to pay the remaining balance in mid-August, they are deeply worried after watching recent news. They had resorted to so-called 'young-geul' (pooling every available resource), utilizing help from parents as well as company and bank loans, but the Bank of Korea has now hinted at an increase in the base interest rate. During consultations with their bank, they were told that if the current interest rate level (around 4.5%) is applied, the interest alone on their 600 million won 'maximum loan' would be at least 3 million won. The problem is that since the actual applicable interest rate is determined on the balance payment date, their anxiety is growing over how much rates will rise by August.
Environment Ripening for Hikes in Inflation, Exchange Rates, and Interest Rates
The Bank of Korea's Monetary Policy Committee froze the base rate at 2.50% per year on the 28th of last month, but signaled the 'possibility of a base rate hike' to the market through its monetary policy direction statement. BOK Governor Shin Hyun-song also effectively confirmed a scenario for interest rate hikes within the year after the Monetary Policy Committee meeting on the 28th, stating, "Whether looking at inflation, growth, exchange rates, or real estate, the path forward is relatively clear." This is because while economic growth remains robust, instability in inflation and exchange rates is increasing. Rising housing prices in the metropolitan area and the growth of household debt are also factors adding weight to the possibility of a rate hike.
The fact that the exchange rate remains high is also a burden, and if the BOK raises rates, it will help prevent the depreciation of the won. In the market, specific scenarios are even being discussed, such as the BOK raising the base rate twice within the year. As a result, the burden on so-called 'young-geul' borrowers and mortgage loan holders appears likely to increase.
Currently, the 5-year fixed mortgage rates at major banks (KB Kookmin, Shinhan, Hana, Woori, and NH Nonghyup) are in the 4.26~6.95% per year range. However, for mortgage loans exceeding 249 million won, most borrowers, even those with good credit scores, are subject to rates of 4.5% or higher due to an additional interest rate of around 0.2 percentage points based on the housing finance credit guarantee fund contribution rate.
The problem is that if the interest rate rises twice (0.5%p) as expected by the market, they could be subject to interest rates in the 5% to 7% range. In particular, some are even suggesting the possibility that the upper limit of mortgage rates could reach 8%.
The market is already reacting. According to the Korea Financial Investment Association, the yield on 5-year financial bonds (non-guaranteed, AAA) recorded 4.207% on the 29th. A day earlier, on the 28th, it rose to 4.280% following the BOK's 'hint at a potential rate hike.' This is the highest level in about two and a half years since November 15, 2023, and is 0.783%p higher compared to the beginning of this year (3.497%). Since 5-year financial bond yields are used by banks to calculate 5-year fixed mortgage rates, they are a key indicator for predicting loan interest rates.
Anxiety Among Buyers as Interest Rates Fixed Only at Final Settlement
Since the applicable interest rate is usually determined on the day the final balance is paid, those who purchased homes using loans are filled with worry. For those who will be subject to 'new interest rates' as their 5-year fixed period expires, the burden of principal and interest repayment is also increasing.
A person in their early 40s, B, borrowed over 400 million won when purchasing a home in early 2022. B lamented, "I took out the loan at around 3.2% at the time, and I've looked into it because my 5-year fixed rate ends early next year and I'll be subject to new rates. It turns out the rate will go up by at least 1%p. My monthly principal and interest payments will increase by about 250,000 won, which is 3 million won over a year. I'm burdened by the thought that if the BOK raises rates, the interest I have to pay might increase even further."
The aforementioned couple, A, also shared, "We are hoping the BOK raises rates only once before August, not twice. Since this is our first home purchase, we calculate the numbers every day, wondering how we will manage our household budget after buying the house. We are very worried that we might end up spending 4 million won every month on real estate costs alone, including principal, interest, and management fees."