Soaring Loan Rates Put 'Young-Geul' and 'Bit-Tu' Borrowers on Alert

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With expectations rising that the Bank of Korea will hike its base interest rate, bank loan rates are climbing rapidly. This is set to increase the interest burden on those who have taken out loans to invest in homes and stocks.

Reporter Kim Hye-min has the story.

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Mr. Lee, a man in his 40s who works in leather repair, is worried after receiving a text message that his *jeonse* (lump-sum housing lease) loan rate will rise by 0.12 percentage points starting next month.

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

The 5-year fixed mortgage loan rates at the five major commercial banks were recorded at 4.46% to 7.49% per annum, while *jeonse* loan rates stood at 3.19% to 5.89%.

Compared to the end of last month, two weeks ago, the upper end of mortgage rates jumped by 0.39 percentage points, and the upper end of *jeonse* loan rates rose 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 due to high inflation caused by the Middle East conflict, the rates for bank bonds, which serve as the benchmark for calculating loan rates, are rising.

Credit loan rates are also surging.

The 1-year variable credit loan rates at the five major commercial banks were recorded at 4.92% to 6.22%, with the upper end already surpassing 6%.

As the upward trend in loan rates continues, the interest burden on those who engaged in "Young-Geul" (stretching finances to the limit to buy a home) and "Bit-Tu" (investing in stocks with borrowed money) is set to grow.

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

[Lee Jung-hee / Professor of Economics, Chung-Ang University: This appears to be a ripple effect of the war in Iran and other factors. Ultimately, as inflation remains high, the trend toward interest rate hikes is returning, which increases financial pressure in a situation where our household and corporate debt levels are already high.]

Despite the rising loan rates, demand for housing and stock investments has continued, leading to an increase of over 9 trillion won in household loans across 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.

(Video Editing: Kim Yun-sung, Design: Choi Jae-young, VJ: Jung Han-wook)
※ Please note: This article was translated by AI and may contain errors.