Soaring Interest Rates Spark Growing Financial Strain

[Anchor]

Bank loan interest rates are rising rapidly amid the possibility of a base rate hike. The burden is mounting for everyone from those paying monthly interest on jeonse (lump-sum housing lease) loans to those who have taken out massive loans to invest in real estate or stocks, often referred to as "young-kkeul" (stretching finances to the limit) and "bit-tu" (debt-financed investment) groups.

Reporter Kim Hye-min has the story.

[Reporter]

Mr. Lee, a man in his 40s who works in leather repair, is worried after receiving a text message that his jeonse loan interest rate will rise by 0.12 percentage points starting next month.

[Mr. Lee / Self-employed: Since I can't pay off the principal of the jeonse loan, I have no choice but to keep paying higher interest, which is a heavy burden.]

The 5-year fixed mortgage rates at the five major commercial banks are currently between 4.46% and 7.49% per annum, while jeonse loan rates range from 3.19% to 5.89%.

Compared to the end of last month, two weeks ago, the upper end of mortgage rates has jumped by 0.39 percentage points, and the upper end of jeonse loan rates has risen by 0.33 percentage points.

The rise in bank loan rates is driven by the upward trend in market interest rates.

As the bond market anticipates that the Bank of Korea will raise the base rate to combat high inflation caused by the Middle East conflict, the yields on bank debentures, which serve as the benchmark for loan interest rates, are climbing.

Credit loan rates are also surging.

The 1-year variable credit loan rates at the five major commercial banks are now between 4.92% and 6.22%, with the upper end already surpassing 6%.

As the upward trend in loan rates continues, the interest burden on those who have borrowed heavily for investments is growing.

For instance, if someone borrowed 300 million won for a mortgage at a 4% annual interest rate with a 30-year maturity and equal principal and interest repayment, the monthly payment would be about 1.43 million won. However, if the rate rises to 6%, the monthly payment increases to about 1.79 million won.

[Lee Jung-hee / Professor of Economics at Chung-Ang University: It appears to be an aftermath of the war in Iran and other factors. Ultimately, high inflation is leading to a renewed trend of interest rate hikes, which is increasing the financial burden at a time when household and corporate debt levels are already high.]

Despite the rising loan rates, demand for real estate and stock investments remains strong, leading to an increase of over 9 trillion won in household loans in the financial sector last month, primarily driven by credit loans.

In response, financial authorities have activated an emergency management system for household debt, and banks are raising the bar for credit loans by reducing limits.

Reported by Kim Hye-min | Video by Kim Yoon-sung | Graphics by Choi Jae-young | VJ by Jung Han-wook
※ Please note: This article was translated by AI and may contain errors.