Interest Rate Change Upsets Borrowers

The website of the Ministry of Construction and Transportation was inundated with criticism from netizens yesterday after the ministry’s announcement that it was imposing a variable interest rate on its “first loan in life” program. They accused the ministry of going back on its word.

A netizen using the screen name, “furious and vexed,” wrote, “What a bolt out of the blue. I never heard that the interest was variable.”

Another netizen using the screen name, “It’s a legal fraud,” gave vent to his indignation by writing, “Everyone knew that the ‘first loan’ was on a fixed rate, and both the government and the bank agreed to that.”

Last November, when the ministry introduced its “first loan in life” program, it said that the rate would be 5.2 percent annually, without clarifying whether the rate would be variable or fixed. It quietly added that the loan would have a variable rate on February 22.

“We didn’t clarify whether the loan would have a variable rate because the interest rate on a loan from the National Housing Fund is based on a ‘repo’ rate that is adjustable when the government’s fund management plans change,” a ministry spokesperson said.

But a banking industry insider said, “It is only natural for people to think that the rate is fixed if the government states a specific annual rate. If it is a variable rate, common sense dictates that the government must state what the rate is linked to.”

An office worker identified as Kwon borrowed 110 million won at a fixed rate as part of the “first loan” program from Woori Bank last December. “The bank tellers explained that the loan would be advantageous to me because the rate is fixed,” he said. Kwon sent Dong-A Ilbo a copy of the contract of the loan that he signed. The contract clearly states the lending rate is “fixed” and “5.2 percent annually until expiration.”

Banks have written that the rate is “variable” on their contracts for “first loan” borrowers since January.

Given that some 17,000 households borrowed 950 billion won under the “first loan” program as of late last year, it is estimated that a considerable number of borrowers took the loan on a fixed rate.

Dong-A Ilbo found out that bank tellers still tell their customers that the loans are “effectively fixed rate.”

Song Seok-jun, a team leader at the Ministry of Construction and Transportation, said, “We asked banks to clarify to borrowers that the loan is on a variable rate. The banks are clearly at fault if they tell their customers that the loan has a fixed rate.”