Rising Mortgage Rates Approach 8% as Borrowers Face Increased Financial Strain

As loan interest rates rise sharply, borrowers engaged in "debt investment" and "soul-sucking" financing are feeling the pressure. The upper limit for mortgage rates is nearing 7.5%, with concerns that rates could soon reach 8%. Variable mortgage rates are also on the rise, as the COFIX (Cost of Funds Index) has increased for two consecutive months, raising fears of further loan rate hikes.

According to financial sources on June 15, the five major banks—KB Kookmin, Shinhan, Hana, Woori, and NH Nonghyup—are offering fixed mortgage rates ranging from 4.42% to 7.46%. This marks an increase of 0.24 to 0.36 percentage points from the end of last month, when rates were between 4.26% and 7.10%. Some banks have seen their lower rates exceed 5%.

The surge in loan rates is attributed to prolonged tensions in the Middle East and growing concerns over tightening monetary policies in major economies, which have led to rising bond market rates. Speculation that the Bank of Korea will raise interest rates in the second half of the year is also contributing to the increase in market rates.

A significant concern is that borrowers are shifting from fixed-rate mortgages, which have climbed to the mid-7% range, to variable-rate products. According to the Bank of Korea, the proportion of variable-rate mortgages among new loans in April was 52.2%.

If interest rate hikes materialize, borrowers who opted for variable rates will face even greater financial strain, as these rates adjust quickly to market changes. Given that a substantial number of recent loans have been issued at variable rates, the impact of rising rates is likely to be felt more acutely by households than in the past.

The recent upward trend in variable mortgage rates, which had previously been in a relatively low range, adds to the burden on borrowers. According to the Bank Federation, the COFIX for new loans in May was 2.90%, up from 2.89% the previous month. Consequently, variable mortgage rates based on the new COFIX are expected to rise. Starting June 16, KB Kookmin Bank will increase its six-month variable mortgage rates from 4.06%-5.46% to 4.07%-5.47%. Similarly, the rates for Jeonse loans (guaranteed by the Korea Housing Finance Corporation) will rise from 3.7%-5.1% to 3.71%-5.11%. Woori Bank's variable mortgage rates based on the new COFIX will also increase from 4.37%-5.57% to 4.38%-5.58%.

A financial industry official stated, "With household loans showing an upward trend again, regulations are tightening. The possibility of the Bank of Korea raising interest rates is also increasing, so the rise in loan rates is likely to continue for the time being."