Soaring Interest Rates Spark Growing Financial Strain

[Anchor]

Bank loan interest rates are rising rapidly amid expectations of a base rate hike. The burden is mounting for everyone from those paying monthly interest on jeonse (long-term deposit rental) loans to so-called "young-geul" (borrowing everything possible) and "bit-tu" (debt-financed investment) borrowers.

Reporter Kim Hye-min has the story.

[Reporter]

Mr. Lee, a 40-year-old in the leather repair business, 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 these high interest rates, which is a heavy burden.]

The five-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 an increase in market interest rates.

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

Unsecured loan rates are also surging.

The one-year variable unsecured 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 "young-geul" and "bit-tu" borrowers is set to grow.

For example, if one borrowed 300 million won for a mortgage with a 30-year maturity at a 4% annual interest rate under a principal and interest equal repayment plan, the monthly payment would be approximately 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 at Chung-Ang University: This appears to be the aftermath of the war in Iran and other factors. Ultimately, high inflation is leading to a renewed trend of interest rate hikes, which increases the financial burden at a time when our household and corporate debt levels are already high.]

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

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

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