Refinancing Home Loans Becomes Challenging as Rates Rise

The purpose of the refinancing system, which aims to reduce interest burdens by switching to lower-rate loans, is becoming less effective. This is due to refinancing rates at many banks being higher than those for new loans. Analysts attribute this trend to stricter management of household loans, prompting banks to adopt a conservative approach not only for new loans but also for refinancing.

On September 27, Park Seong-hoon, a member of the National Assembly's Political Affairs Committee, revealed data from the Financial Supervisory Service comparing average rates for general and refinancing loans across banks. According to the data, in July of this year, 11 out of 16 banks offering home mortgage loans had average refinancing rates that were higher than those for new loans.

The largest rate difference was found at iM Bank, where the refinancing rate was 7.17%, significantly higher than the new mortgage rate of 4.84%, a difference of 2.33 percentage points. Jeonbuk, Jeju, Busan, and Suhyup banks also reported refinancing rates that were 0.39 to 0.53 percentage points higher than new loans.

Among the five major banks (KB Kookmin, Shinhan, Hana, Woori, and NH Nonghyup), rate inversion was also evident. Woori Bank's refinancing rate was 4.71%, exceeding the new mortgage rate of 4.34% by 0.37 percentage points. NH Nonghyup and Hana banks had refinancing rates that were 0.24 and 0.18 percentage points higher, respectively.

In contrast, KB Kookmin Bank reported a refinancing rate of 4.32%, which was 0.04 percentage points lower than the new loan rate of 4.36%. Similarly, Shinhan Bank's refinancing rate was 4.30%, 0.12 percentage points lower than its new loan rate of 4.42%.

Consumers looking to refinance are feeling the impact of these trends. Some have abandoned their plans to switch loans after discovering that the refinancing rates were higher than their existing loans. One consumer stated, "After consulting and comparing rates, I found that the refinancing options were not better than my current loan, so I decided to stick with it."

A similar situation is occurring with credit loans. Among the 16 banks, 10 had refinancing rates that exceeded those for new loans. In the five major banks, four had higher refinancing rates than new credit loans, with Hana Bank's average new credit loan rate at 4.70% compared to a refinancing rate of 5.72%, a difference of 1.02 percentage points.

However, financial authorities caution against concluding that banks are setting higher refinancing rates solely based on average rates. They note that the creditworthiness and collateral value of borrowers using new loans versus refinancing loans can differ significantly.

The refinancing system was introduced to allow consumers to switch to lower-rate products, thereby reducing their interest burdens. According to the Financial Services Commission, approximately 420,000 individuals utilized refinancing services by the end of last year, with an average annual interest savings of 1.69 million won per person.

Nonetheless, as market interest rates rise and banks tighten lending criteria, the perceived benefits of refinancing have diminished. Analysts suggest that under the current household loan management policies, banks are conservatively managing both new and refinancing loan operations. A financial industry source remarked, "From the banks' perspective, lending is heavily regulated, leading to a contraction in loan issuance."

Park Seong-hoon emphasized, "Since this system was designed to encourage consumers to switch loans for better rates, it is natural for them to question its effectiveness. The financial authorities need to investigate the causes of rate inversion and assess how much this system is actually reducing borrowers' interest burdens."