"I Might End Up Paying My Entire Salary Just for Interest"... Annual Per-Person Interest Could Reach 6.73 Million Won, 'Yeongkeul-jok' Lament

If Lending Rates Rise, Interest Burden from "Yeongkeul" and "Bittoo" Will Also Snowball

Bankbook image. Getty Image Bank

As signs point toward a clear shift to monetary tightening, warnings are growing that households will face rapidly rising interest payment burdens. In particular, with household debt—led by home mortgages—reaching record highs, analysts say the increase in repayment pressure triggered by higher interest rates could threaten overall financial stability.

Three Interest Rate Hikes? … If Mortgage Rates Rise by 0.75%p, Interest Costs Increase by 5.5 Trillion Won

According to data submitted by Assemblyman Lee Jongwook of the People Power Party to the Bank of Korea on July 15, if home mortgage rates rise by 0.25 percentage points (p), the total annual interest burden for all borrowers will increase by 1.8 trillion won. The average annual interest payment per borrower will rise from 5,843,000 won to 6,139,000 won, an increase of 296,000 won.

These figures are estimates by the Bank of Korea, based on the record-high outstanding home-related loans (1,178.6 trillion won) at the end of the first quarter this year, along with the proportion of variable-rate loans. The estimate includes all home mortgage loans, jeonse deposit loans, and group loans from deposit banks, non-bank deposit-taking institutions, and other financial institutions.

As of the end of April this year, 35.6% of home mortgage loans from deposit banks were variable-rate, while 64.4% were fixed-rate. The prevailing market outlook is that the Monetary Policy Board’s base rate hike will not stop at this single increase. It is widely forecast that there could be two or more hikes within this year, and a total of three to four hikes through next year. Accordingly, the burden of principal and interest repayments on loans is likely to continue rising into next year.

According to Bank of Korea estimates, if interest rates climb by 0.50 percentage points, the total annual mortgage interest payment by borrowers will surge by 3.7 trillion won; if they rise by 0.75 percentage points, the increase will balloon to 5.5 trillion won. The average annual interest payment per borrower would rise to 6,435,000 won and 6,731,000 won, representing increases of 592,000 won and 889,000 won, respectively, compared to the present.

Average Mortgage Balance Per Vulnerable Borrower: 130 Million Won… Risk of Soaring Delinquency Rates

In particular, the impact on vulnerable borrowers is expected to be even greater. According to the Bank of Korea, as of the end of the first quarter this year, the average outstanding home mortgage balance per vulnerable borrower—that is, a multiple debtor with low income or low credit—was 135.2 million won. Multiple debtors are defined as those with a combined total of three or more loan institutions and products, and are essentially deemed to have reached the limits of borrowing from financial institutions.

Assemblyman Lee pointed out that as the period of definitive rate hikes arrives, it will be critical to closely monitor the sharp rise in the delinquency rate among these borrowers and the growing risk of household loan defaults.

Are the Aftershocks of 'Debt-Fueled Investing' Just Beginning?

The burden is also expected to sharply increase for borrowers with loans driven by the recent 'Bittu' (debt-funded investment) boom. This is because the interest rates for other loans—including personal credit loans, overdraft accounts, and savings-secured loans—could rise along with mortgage rates.

According to Bank of Korea estimates, if loan interest rates increase by 0.25 percentage points, the annual interest burden for other loans will rise by 1.5 trillion won, with the average for each borrower rising by 76,000 won. If rates climb by 0.50 percentage points, interest will go up by 3 trillion won; at 0.75 percentage points, it will increase by 4.5 trillion won, meaning the per-borrower interest burden will rise by 153,000 won and 229,000 won, respectively.

Assemblyman Lee said, "The government must examine the interest burden and household debt risks the public will face due to rising interest rates, and make its utmost efforts to normalize the real estate market through a major policy shift."

This content was produced with the assistance of AI translation services.