Loan rates on an upward trajectory

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A customer consults at a bank in Seoul on Thursday. [NEWS1]

It is becoming more and more expensive to borrow in Korea.

The average interest rate on household loans – mortgages and other types of bank loans – approached 4% last month, the highest level since July 2014. On mortgages, some banks are charging more than 6%.

The weighted average interest rate on loans to households in February was 3.93%, up 0.02 percentage points from the previous month, according to the Bank of Korea on Thursday. Interest rates on unsecured loans rose 0.05 percentage points on the month to 5.33%, the highest level since 5.38% in August 2014. Interest rates on loans mortgages were 3.88%, up 0.03 percentage points from the previous month. This is the highest level since 3.97% in March 2013.

Fixed interest rates for mortgages in commercial banks – KB Kookmin, Shinhan, Hana, Woori, NongHyup – ranged between 4 and 6.1% per annum at the end of March. The rate is fixed for five years. The last time a mortgage rate exceeded 6% was in November 2011.

Fixed rate mortgages are generally more popular when interest rates rise, and the rate is usually higher than for variable rate mortgages. But this high rate seems to have put off borrowers. Fixed-rate loans accounted for 22% of mortgages signed in February, compared to 31.1% last February.

Rates for loans for jeonse, long-term rental deposits on residences, also jumped.

The rates for jeonse loans in commercial banks vary between 3 and 5%. A jeonse loan from Hana Bank offers a rate of 5.071%.

More expensive loans usually mean a higher spread between loan rates and money paid out on deposits. But they can also dampen demand for loans.

Total household debt outstanding with the five commercial banks was 705.29 trillion won ($580 billion) as of March 24, down 0.09% on the month. In February, outstanding household debt decreased by 0.2% month on month.

Lending rates will rise with the Bank of Korea (BOK) base rate hike.

The BOK raised the benchmark rate by 0.25 percentage point to 1.25% in January. Its monetary policy board froze the rate in February. The trend under new BOK Governor Rhee Chang-yong remains vague.

“Big differences in rates [with the U.S.] are not desirable,” Rhee told reporters as he walked to a central bank office where he is preparing for his confirmation hearing.

But since the United States has high growth and inflation, the speed of rate increases in the United States could be faster than in Korea, Rhee said.

A customer consults at a bank in Seoul on Thursday. [NEWS1]

A customer consults at a bank in Seoul on Thursday. [NEWS1]

It is becoming more and more expensive to borrow in Korea.

The average interest rate on household loans – mortgages and other types of bank loans – approached 4% last month, the highest level since July 2014. On mortgages, some banks are charging more than 6%.

The weighted average interest rate on loans to households in February was 3.93%, up 0.02 percentage points from the previous month, according to the Bank of Korea on Thursday. Interest rates on unsecured loans rose 0.05 percentage points on the month to 5.33%, the highest level since 5.38% in August 2014. Interest rates on loans mortgages were 3.88%, up 0.03 percentage points from the previous month. This is the highest level since 3.97% in March 2013.

Fixed interest rates for mortgages in commercial banks – KB Kookmin, Shinhan, Hana, Woori, NongHyup – ranged between 4 and 6.1% per annum at the end of March. The rate is fixed for five years. The last time a mortgage rate exceeded 6% was in November 2011.

Fixed rate mortgages are generally more popular when interest rates rise, and the rate is usually higher than for variable rate mortgages. But this high rate seems to have put off borrowers. Fixed-rate loans accounted for 22% of mortgages signed in February, compared to 31.1% last February.

Rates for loans for jeonse, long-term rental deposits on residences, also jumped.

The rates for jeonse loans in commercial banks vary between 3 and 5%. A jeonse loan from Hana Bank offers a rate of 5.071%.

More expensive loans usually mean a higher spread between loan rates and money paid out on deposits. But they can also dampen demand for loans.

Total household debt outstanding with the five commercial banks was 705.29 trillion won ($580 billion) as of March 24, down 0.09% on the month. In February, outstanding household debt fell by 0.2% month on month.

Lending rates will rise with the Bank of Korea (BOK) base rate hike.

The BOK raised the benchmark rate by 0.25 percentage point to 1.25% in January. Its monetary policy board froze the rate in February. The trend under new BOK Governor Rhee Chang-yong remains vague.

“Big differences in rates [with the U.S.] are not desirable,” Rhee told reporters as he walked to a central bank office where he is preparing for his confirmation hearing.

But since the United States has high growth and inflation, the speed of rate increases in the United States could be faster than in Korea, Rhee said.

BY JIN MIN-JI, AHN HYO-SUNG [[email protected]]

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