The interest rate shock from high-interest loans that vulnerable debtors with high loan-to-value (LTV) ratios and those making investment and consumption loans with high-interest rates are likely to be bigger as they have mainly opted for the floating rate.

The Korea Bank raised the benchmark interest rate for two consecutive months, leading to a significant increase in the burden of interest for mortgage and loan borrowers, particularly those who recently took out loans, who predominantly chose variable interest rate options. This is because most new borrowers select variable interest rate loans over fixed interest rate ones.

Consequently, the impact of the benchmark interest rate hike will be more pronounced. According to the Korea Bank, the total outstanding household loan amount as of the end of June had reached ₩1891.3 trillion. This includes ₩1190.8 trillion in housing loan-related loans and ₩700.5 trillion in non-housing credit loans.

As of July, the average interest rate for household loans (based on loan amount) stood at 4.48%, with housing loan-related loans averaging 4.31% and general credit loans at 5.58%. Notably, the proportion of variable interest rate loans exceeds fixed interest rate loans in the overall household loan amount, accounting for 56.7% (housing loan-related loans at 37.6%).

This is expected to amplify the effect of the upcoming benchmark interest rate hike over the next two months (totaling 0.50 percentage points). Recent data suggests that borrowers taking out new loans are likely to feel the increased interest burden more acutely. Of the recent new borrowers, 79.0% chose variable interest rate loans, while only 21.0% opted for fixed interest rate loans.

The interest rates for new household loans, based on July data, averaged 4.64% on a monthly basis. Housing loan-related loans had an average variable interest rate of 4.35%, while fixed interest rate loans averaged 4.76%. General credit loan borrowers can expect their average interest rate to potentially rise to the mid-6% range.

However, some experts believe that the Korean government's cautious stance on debt accumulation is already reflected in short-term financial instruments and market interest rates, suggesting that future interest rate hikes may be more gradual and better controlled. In fact, government bond yields, such as 3-year and 10-year bonds, have recently declined, reflecting the same trend.