71% of household loans with variable interest rates

A view of a commercial bank loan window in downtown Seoul. News 1

The proportion of variable interest rates among household loans stood at 71.1 percent, the highest in six years and two months.

According to the economic statistics system of the Bank of Korea on the 6th, the proportion of variable rate loans among household loans based on the balance at the end of April was 71.1%. This is the highest figure since February 2015 when it recorded 71.3%.

In terms of new transaction amount, 73% of household loans were floating rate loans, the highest in two years and nine months since July 2018.

This increase in variable rate household loans is due to the low interest rate trend maintained for a long time due to the impact of COVID-19.

The proportion of variable interest rates among household loans stood at 65.6% in January 2020, hovering around 60%. However, as the Bank of Korea lowered the base rate from 1.25% to 0.75% in March of the same year, and further lowered it to 0.5% in May, the proportion of floating rates began to increase rapidly. Floating rates may be advantageous when low interest rates are maintained, but caution is required as the possibility of an early rate hike is recently being discussed.

At a press conference held right after the Monetary Policy Committee last month, Bank of Korea Governor Lee Ju-yeol suggested the possibility of an early interest rate hike, saying, “I think it is necessary to contain the increase in household debt, and to respond to this without delay.” “Whether or not the rate hike will be raised within this year will ultimately depend on the development of economic conditions,” said Governor Lee. “I am not in a hurry to normalize interest rates, but I have the mindset that I should not even practice it.”

Reporter Hyeong-jun Um [email protected]

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