Interest rate on mortgages down to less than 3%

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Interest rate on mortgages down to less than 3%

The interest rate for mortgage loans at local banks has fallen below 3 percent for the first time, and concerns are rising that the trend could aggravate the country’s household debt.

According to the banking industry on Sunday, the 3 percent threshold was broken last week on mortgages at many commercial banks. Woori Bank said that as of Friday, its lowest interest rate, on the “Woori Apartment Loan” with a 15-year repayment period and floating interest rate, sank to 2.9 percent.

Loans with fixed interest rates have also fallen below 3 percent. Woori Bank said that the lowest fixed rate for one of its mortgage loan programs, which turns to a floating rate system after five years, plunged to 2.91 percent on Friday.

The actual interest rate depends on each customer’s credit rating, but the company said it is the first time that the home loan interest rate has fallen to the 2 percent range.

Other banks are also following the downward trend. According to Korea Exchange Bank, its fixed interest rate for mortgage loans, which changes to floating rate system after three years, marked 2.85 percent on Friday.

Hana Bank said that as of Friday, it has applied a fixed interest rate ranging from 2.97 percent to 3.97 percent for mortgages, which turns to a floating rate system after three years. Mortgage loans from Shinhan Bank and Kookmin Bank are also expected to drop below 3 percent soon.

For home buyers, the falling rate is good news. For instance, if a person takes out a 100 million won ($92,800) mortgage, the borrower will pay about some 200,000 won in monthly interest at a rate of less than 3 percent.

Due to the low interest rate, many people are borrowing more from the bank. Preliminary data released by the Bank of Korea last week showed that outstanding home loans issued by local banks reached 406.9 trillion won in December, which is a record 6.2 trillion won increase from the previous month.

Experts have said there is a major risk that household debt will continue to grow, as more people use money from mortgages to cover living costs or fund a business.

According to last month’s data from Korea Institute of Finance researcher Chang Min, who analyzed data from 1.88 million mortgage borrowers in the past year, the portion of those who already have a mortgage increased from 37 percent to 42 percent.

“As the size of debt from households that already took mortgage loan are increasingly rising, we should take a close look at financial stability of household with the changing interest rates and economic conditions,” Chang said. [BY SHIM SAE-ROM ]

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