Mortgage rates in South Korea have climbed 0.33 percentage points in two months. The increase looks small, but for a borrower who has taken out 300 million won ($216,000), it means paying about 80,000 won more in interest every month.
Variable-rate mortgages at the country's five largest banks — KB Kookmin, Shinhan, Hana, Woori and NH Nonghyup — stood at 4.35% to 6.72% as of the 22nd, according to financial industry sources. That compares with 4.02% to 6.37% on July 15, meaning the lowest available rate rose 0.33 percentage points in a little over two months. Lending rates are under upward pressure as the Bank of Korea's base rate increase coincides with higher spreads charged by banks.
The impact becomes clearer when translated into actual interest payments. For a borrower with a 300 million won loan at 4.02%, first-month interest comes to about 1.005 million won.
At 4.35%, that rises to about 1.0875 million won — more than 80,000 won extra each month. Over 30 years, the difference in total interest reaches about 20 million won. On an equal principal-and-interest repayment basis, the monthly payment grows from 1.436 million won to 1.493 million won.
Bank of Korea analysis supports this. Based on first-quarter figures this year, a 0.25 percentage point rise in housing-related lending rates would increase total annual interest costs for all borrowers by 1.8 trillion won, or 296,000 won a year per borrower. A 0.50 percentage point rise would add 3.7 trillion won, and a 0.75 percentage point increase 5.5 trillion won.
The concern is the high share of variable-rate loans. In July, 68.1% of new mortgages — roughly seven of every 10 — carried variable rates. Because rate increases feed through to interest payments immediately, the shock can spread quickly. The average spread on new installment-repayment mortgages at the five banks was 3.26% in July, holding at a record high, suggesting rates will keep rising through the end of the year.
