The burden of growing interest rates on loans

With the balance of household loans in the banking sector exceeding 1,000 trillion won, the interest burden on borrowers is continuously increasing as market interest rates such as financial bonds, which are used as indicators of bank lending rates, continue to rise.

If inflation expectations increase market interest rates in earnest and banks increase the additional interest rate (reducing preferential interest rates) according to the government’s policy on household lending regulation, the interest burden is feared to be a drag on the recovery of the Korean economy.

According to the financial sector on the 10th, the interest rate on credit loans (grade 1 and year 1) of KB Kookmin, Shinhan, Hana and our four major commercial banks is 2.57 ~ 3.62% per annum. This is a 0.58 percentage point increase from 1.99 to 3.51% at the end of July last year when the ‘1% credit loan rate’ appeared.

In the same period, not only the interest rate on credit loans but also the interest rate on mortgage loans have increased significantly. As of July 7, the rate of change in mortgage loans linked to Cofix is 2.55 to 3.90% per annum. The lowest interest rate also rose 0.3 percentage points from the end of July last year (2.25-3.96%).

In particular, the so-called “mixed” type, which follows the five-year interest rate on bank bonds, not Cofix, among mortgage lending rates, showed a bigger rise in interest rates.

The mixed-type interest rate jumped from 2.17 to 4.03% at the end of July last year to 2.82 to 4.43%, with the top and bottom jumping 0.65% points and 0.4 percentage points respectively.

The rise in the lending rate of the banking sector is also confirmed by the Bank of Korea’s weighted average interest rate statistics.

As of March, 폰테크 the deposit bank’s overall household loan interest rate (based on the weighted average and new handling) was 2.88%, up 0.07 percentage points (p) from February’s (2.81%). The general credit rate (3.70%) and mortgage rate (2.73%) reached their highest levels within 21 months since February last year (3.70%) and June 2019 (2.74%).

The Bank of Korea said, “The interest rate on household loans such as bank bond interest rates has risen, and banks have reduced preferential rates to manage loans.”

First, interest rates on short-term financial bonds such as six-month and one-year bank bonds, which are used as indicators of credit loan interest rates, also rose.

In fact, according to the Korea Financial Investment Association’s Bond Information Center, the one-year interest rate on bank bonds (AAA) (unsecured) used the most as credit loan index interest rates rose by 0.074 percentage points from 0.761 percent at the end of July last year to 0.835 percent at the end of April this year.

The COFIX (Financial Cost Index), which serves as the benchmark interest rate for variable mortgage loans, is also rising. In April, the KOFIC announced that it was 0.84% based on new treatments, which is 0.03 percentage points higher than 0.81% in July last year.

The mixed-rate interest rate at Judam University often follows the five-year bank bond interest rate as an indicator. The five-year bank bond (AAA) interest rate jumped 0.564 percentage points from 1.277% at the end of July last year to 1.841 percent at the end of April this year.

Policy regulations are also raising interest rates. Since October last year, financial authorities have started to “tighten credit loans,” and banks have significantly reduced their preferential interest rates by more than 0.5 percentage points.Credit loan rates are set by adding additional interest rates to the base rate (indicator) and the more preferential rates that reflect transaction performance, the lower the additional interest rate.

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