A Little Diligence Can Lower Interest Rate by One Percent

Lending rates continue to rise.

Any borrower would want to get a loan with a lower interest rate. However, it’s not easy comparing complicated lending terms and conditions from a multitude of banks. But one thing clear: diligence can lower the burden of interest rate.

○ Different Mortgage Rates on the Same Collateral

A reporter for the Dong-A Ilbo visited the nation’s four biggest commercial banks to find out mortgage rates for an apartment with a market price of 755 million won. (Lending terms: variable interest rate of three months and repayment in 17 years with a three-year grace period.) After visiting four banks, the reporter found out that the mortgage rate differed by 1.0 percentage point.

As of Jan. 7, Woori Bank’s annual lending rate was 8.05%. The rate was 8.1% at Kookmin Bank, 7.8% at Hana Bank, and 7.05% at Shinhan Bank.

The prime rate was 7.5% at Kookmin Bank and Hana Bank while at Shinhan Bank and Woori Bank it was 7.05%.

Prepayment fee and mortgage establishment fee also differed by banks.

For Hana Bank borrowers who bear the mortgage establishment fee, they are exempt from the prepayment fee. On the other hand, Kookmin Bank charged borrowers who repay their debt within three years 0.7% of the loan amount, Shinhan Bank charged borrowers who repay within three years 0.5-2.0% of the debt, and Woori Bank charged a 0.5-1.0% commission fee, depending on the length of period.

Most banks suggested that they lend about triple the borrower’s annual income in accordance with the debt-to-income ratio over a 20-year redemption period.

○ Banks Avoid Credit Loans and Fixed-Rate Mortgages

Banks are reluctant to lend money on credit without security, partly due to a lack of capital.

The only bank which lends money to graduates who have just landed a job was Hana Bank (annual lending rate 7.0-8.4%). Kookmin Bank gives a loan to those employed for more than one year and Shinhan Bank lends money to those employed for at least six months.

A Woori Bank official noted, “Woori Bank has recently increased its credit loan interest rate sharply. I think it would be better for you to visit foreign banks.” He added, “We’re under pressure since lending has recently exceeded savings.”

In the meanwhile, most of them seemed to avoid giving out fixed-rate mortgage loans, saying, “Fixed-rate is higher than variable interest rate,” or “We don’t have any fixed rate products.”

It also turns out that only a few borrowers draw a mortgage loan at the minimum lending rate. An official with Hana Bank confessed, “Only one person has borrowed money at the annual rate of 6.8%, the minimum rate suggested by headquarters.”

peacechaos@donga.com hanwshin@donga.com