2023-10-05 11:51:25
The 7% mortgage loan era has begun.
Borrowers are betting that interest rates will rise further
As concerns grow that “the interest rate rise will not stop”
When applying for a loan, you will be offered a product with a fixed interest rate
Household loans from insurance companies also increased by KRW 800 billion in two months.
Enlarge photo. Loan interest rate notices at commercial banks in Seoul. 2023.9.24 [사진=연합뉴스]
#Mr. A, who was looking for a home mortgage loan ahead of paying the balance of the apartment sales contract at the end of November, learned that he could reserve an interest rate through an insurance company and decided to take advantage of it. Considering the recent high interest rate trend, we decided that it would be like taking out a kind of ‘interest rate insurance’ in a situation where we do not know if the mortgage interest rate may rise further. The loan that Mr. A wants to receive is 500 million won, and if the interest rate is lowered by just 0.3 percentage points, he can save more than 100,000 won in monthly loan interest.
As mortgage interest rates are on the rise due to the high interest rate trend and rising bank bond interest rates due to the prospect of prolonged financial austerity in the United States, a loan financing method that preempts loans at lower interest rates is attracting attention. This is possible because banks apply the interest rate at the time of loan ‘execution’, but insurance companies can choose a favorable interest rate between the time of loan ‘application’ and ‘execution’. In online cafes, there is a significant increase in the number of inquiries about insurance companies that can make interest rate reservations.
Enlarge photo Card loan sticker posted on the streets of Myeong-dong, Seoul. 2023.10.4 [사진=연합뉴스]
On the 5th, Maeil Business Newspaper asked a loan counselor for mortgage loan consultation and found that some insurance companies allow interest rates to be reserved for up to three months. This counselor advertised, “The interest rates of commercial banks are better, but insurance companies have better loan limits,” and “There is an option to waive 50% of early repayment fees, so it can be used for future responses as well.” This counselor said, “There is a possibility that mortgage interest rates will rise significantly by the end of the year, so it is helpful to have an interest rate reservation product.”
Interest rate reservation refers to confirming the loan interest rate at the lower interest rate between the loan application date and execution date. In particular, in the case of home loan, it is common to apply for the balance two months in advance, so it is a means for borrowers to somewhat mitigate the risk in the face of interest rate hikes. Even if interest rates drop, there is a way to receive the interest rate on the loan application date.
As the recent increase in mortgage interest rates has become noticeable, it is analyzed that the number of borrowers looking for insurance companies that can reserve interest rates has also increased. According to the status of insurance company mortgage loan interest rates published by the Life Insurance Association and the Non-Life Insurance Association, the lower interest rate of home mortgage loan products handled by commercial insurance companies rose 0.32 percentage points from 4.12% in July to 4.45% in September. The lower end of the variable interest rate for bank loans is 4.17% and the upper end is 7.12%, but the financial sector believes that this could rise even higher considering recent trends.
enlarge photo
As interest rate reservation mortgage loans became more popular, household loans from insurance companies also increased. According to the Bank of Korea, household loans through insurance companies increased by a net 800 billion won between July and August of this year, exceeding the increase (500 billion won) over the same period last year.
An official from an insurance company that handles mortgage loans said, “Banks are at a disadvantage in situations where there is great interest rate uncertainty because the interest rate application point is determined at the time the loan is executed.” He added, “In the case of insurance companies, the borrower requests the insurance company for a loan. “Because it is designed with a structure in mind, the interest rate can be confirmed at the time of loan application, which is advantageous during periods of rising interest rates,” he explained.
In the banking sector, interest rate reservations are only possible for some policy finance products such as stepping stone loans. In 2013, IBK Industrial Bank attempted a ‘loan interest rate reservation system’ that applies the interest rate at the time of consultation even if the market interest rate rises after loan consultation, but this has now been discontinued in major banks. Although it is a system in which banks bear a certain degree of risk due to interest rate fluctuations for customer convenience, there are concerns that it may have a negative impact on bank profitability.
An official from a commercial bank said, “Until a few years ago, there was not much demand for interest rate reservations due to the low interest rate trend and not much volatility,” and “From the bank’s perspective, the interest rate had to be confirmed on the day of executing the loan to facilitate fund management and the interest rate. “Because the risk is shared with the borrower, it is difficult to actively reserve interest rates,” he explained.
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