Rate hike to add $1.21 bil. to mortgage borrowers' interest burden

Bank of Korea Gov. Shin Hyun-song speaks during a press conference at BOK headquarters in Seoul's Jung District, June 17. Yonhap

A quarter-percentage-point increase in mortgage lending rates would add 1.8 trillion won ($1.21 billion) to Korean borrowers' annual interest burden, Bank of Korea (BOK) data showed Wednesday, with the central bank widely expected to raise its benchmark interest rate on Thursday.

The estimate comes a day ahead of the BOK's Monetary Policy Board meeting, where policymakers are expected to raise the benchmark interest rate by 25 basis points to 2.75 percent, in what would mark the first rate increase since January 2023.

According to data submitted by the BOK to Rep. Lee Jong-wook of the main opposition People Power Party, a quarter-point increase in mortgage lending rates would raise the average annual interest burden per borrower by about 296,000 won, from 5.84 million won to 6.14 million won.

The estimate is based on 1,178.6 trillion won in outstanding housing-related loans as of the end of March, including mortgages and jeonse loans — a rental system in which tenants make a large lump-sum deposit instead of paying monthly rent — extended by banks and other financial institutions.

The repayment burden could rise even further if the central bank enters a tightening cycle.

Market watchers expect the tightening cycle to extend beyond Thursday's rate-setting meeting, with some analysts forecasting additional rate increases by the end of the year.

According to the BOK data, a 0.5-percentage-point increase in mortgage lending rates would raise borrowers' annual interest payments by 3.7 trillion won, while a 0.75-percentage-point increase would push the additional burden to 5.5 trillion won.

The projections are likely to heighten concerns among leveraged homebuyers who stretched their finances to purchase homes during the housing boom.

Borrowing costs for homeowners have already been climbing.

According to the Korea Federation of Banks, fixed-rate mortgage rates at major five lenders now exceed 7 percent at the upper end, and analysts expect lending rates to remain elevated as banks tighten household lending and the central bank embarks on a monetary tightening cycle.