By Jane Han
Staff Reporter
In late 2006, Kim Hee-tae paid a little more than two million won ($2,000) a month on his home mortgage. He used to think that was too much, but has since changed his mind.
Over the past two years, his payment on his home equity loan worth 500 million won ($500,000) has risen to nearly three million won this month. He originally took out the loan to buy his apartment for 1.25 billion won in a lucrative area of southern Seoul, hoping that prices would go up further.
The real estate slowdown, however, has dragged down his apartment's value more than 200 million won. Worse he is now stuck with a bigger mortgage payment every month.
The Bank of Korea's interest rate hike to 5.25 percent Thursday is expected to drive up interest rates on home equity loans, further damaging the already-sluggish real estate market.
``This is not what I had in mind when I bought my apartment,'' said Kim, 44, who earns a monthly paycheck of eight million won. ``I thought I made enough to afford my payment, but things are quickly changing.''
Major domestic banks have indicated raising rates on home loans next week to between 6.5 percent and eight percent. This means someone who has a home loan of 200 million won will have to pay almost one million won more in interest every year.
The added burden will force homeowners with big loans to sell their property, a very murky prospect.
``The problem is that chances are slim that their units will sell any time soon,'' said Kim Eun-kyung, an analyst at the real estate consulting firm Speed Bank.
She said too many unsold properties are on the market, and the rate hike will only worsen the situation.
``Potential home buyers will not take out loans when interest rates are so high,'' she said, ``and this will delay their purchases to who knows when.''
Kim Keun-ok, a real estate agent at Property Bank, said the economic slump is making people nervous and pushing them to sell off properties in a rush.
``This isn't a smart thing to do because sellers will lose money in this market situation,'' Kim said, urging owners to wait until conditions recover.
Real Estate 114 said apartment prices in Seoul have dipped for five consecutive weeks, with the decline led by the so-called "Bubble Seven" districts, which had seen the fastest rise in value.