Borrowers brace for higher interest payments with BOK rate hike expected Thursday
A hike to 2.75 percent by the central bank would drive up bills across the board, with the market increasingly betting on further increases this year.
Customers consult with a bank representative at a commercial bank in Gyeonggi on July 15, the day before the Bank of Korea's interest rate decision.
NEWS1
Borrowers are set to face higher interest on loans as the Bank of Korea (BOK) is expected to raise its benchmark rate by 0.25 percentage points to 2.75 percent on Thursday, its first increase since January 2023.
If banks pass the increase straight through to consumers, the lowest fixed mortgage rate at the four biggest lenders — KB Kookmin, Shinhan, Hana and Woori — would climb from 4.34 percent to 4.59 percent per year. On a new 300 million won ($201,000) mortgage repaid over 30 years, the monthly payment would rise by about 44,000 won to roughly 1.54 million won. Over a year, that would be an additional 530,000 won.
Borrowers with weaker credit, who pay higher rates, face a steeper jump. Their top fixed rate would rise from 6.52 percent to 6.77 percent, pushing their monthly payment to about 1.95 million won, or an extra 600,000 won a year.
Existing borrowers are exposed, too. Variable-rate mortgages, typically repriced every six months, pass on base-rate movements quickly. As of April, 35.6 percent of commercial banks' outstanding mortgages carried variable rates and 64.4 percent carried fixed rates, the central bank said.
The bigger worry is that the expected hike may not be the last. The market is increasingly betting on further upward movement: at least two more hikes this year and three or four in total through next year.
Data that Rep. Lee Jong-wook of the opposition People Power Party obtained from the central bank shows how quickly that adds up. A 0.25 percentage point rise in mortgage rates would add 1.8 trillion won to borrowers' cumulative annual interest. A 0.5 percentage point increase would push that to 3.7 trillion won, and a 0.75 percentage point increase to 5.5 trillion won. The figures cover mortgages, jeonse (lump-sum deposit) loans and group loans at both banks and nonbank lenders such as mutual finance cooperatives.
People who invest with borrowed money will feel pressure as well. Rates on other loans, such as overdraft accounts and unsecured credit, rise with the base rate. The BOK estimates that a 0.25 percentage point hike would add an additional 1.5 trillion won a year in interest on those loans.
BY YEOM JI-HYEON [[email protected]]
This article was originally written in Korean and translated by a bilingual reporter with the help of generative AI tools. It was then edited by a native English-speaking editor. All AI-assisted translations are reviewed and refined by our newsroom.
