Banks Charge Housing Mortgage Fee Again

Banks will charge fee for housing mortgage loan again. Most of banks has not charged housing mortgage fee to extend the loan since the last year. Housing mortgage fee is a cost for documentation and registration to give a housing in fixed collateral for apartment or independent housing. The cost for more than 3 years is generally exempted and the cost is 0.7%-1.0% level of the loan.

Therefore, if the banks charge the fee, the interest rate on the loan increases in borrower`s position de facto. Additionally, individuals are reluctantly to purchase apartment, so it may act as one of factors to decline the price of apartments.

Banks have practiced aggressive marketing to extend loan by paying housing mortgage fee instead of the customers, but worried about the worsening of profits.

▽Woori Bank takes the lead= in the bank`s position, housing loan for apartment is not so profitable after deducting overhead costs, labor cost, indirect costs, etc. So they should charge housing mortgage fee, but they are reluctant to charge the fee because of the anxiety losing customers to other banks. Under the circumstance, Woori Bank abolished the exemption system at 5th suddenly. Next, Shinhan Bank that introduced the exemption system in January of 2001 first began to consider the abolition.

A staff of Shinhan Bank spoke “The cost bank paid for customers from January to October is about 50 billion won.” And added “Considering the weak profitability of the loan. It is difficult to maintain the system further.”

Kim Young-il, Vice President of Kookmin Bank “We forecasted that the exemption system would not last long time under the circumstance of low profitability because of low interest on loan.” And added “Kookmin Bank also consider the abolition of the system.”

If Kookmin Bank that shares more 5han 40% of household loan charges mortgage fee, other banks will follow, and life insurance and non-life insurance are expected to follow them.

▽The effect of increase of interest rate on loan=if a customer borrows 100 million won with apartment mortgage, he/she should pay 700,000 – 1,000,000 won at rump sum for mortgage fee. So considering the term of 3 years loan, the interest rate increased 0.23%- 0.33% annually.

The banks have already decreased the rate of mortgage for housing loan to 60% of market value. So if the system is abolished, the household loan market will contract further. The banks prefer high profitability with small loan rather than low profitability with large loan. It may affect real estate market directly because it is difficult for a individual to purchase apartment with loan at low interest rate, aggregate demand for housing may decrease.

Do-Young Kim nirvana1@donga.com