Loan refinancing drops 82% as rates near 8%, savings shrink

As loan rates approach 8%, fears of an "interest bomb" are mounting — yet the path to refinancing into a lower rate is narrowing. The number of customers who successfully refinanced into a primary lender plunged more than 80% in a single year. On top of the higher bar for refinancing, even those who manage to switch are seeing smaller savings as the gap between old and new rates shrinks.

According to loan comparison platform Finda, 143 customers refinanced into a primary lender through the platform between June and August this year — an 82.1% plunge from 799 customers during the same period last year.

Cases of borrowers switching from higher-rate secondary lenders to primary lenders also declined. The number of such refinancing transactions fell about 30% in the June–August period compared with the same stretch last year.

The financial benefit for those who did refinance also shrank over the same period. The existing secondary-lender loan rate for customers who switched to a primary lender this year was 0.28 percentage points lower than last year's figure — but the new primary-lender rate they moved into was 0.98 percentage points higher than the year before. As the gap between old and new loan rates narrowed, so did the interest savings from refinancing.

Per-customer interest savings for those who refinanced from a secondary to a primary lender fell from about 630,000 won last year to about 410,000 won this year — roughly 65 percent of last year's figure, a drop of about 35 percent in a single year.

Tighter household loan management lies behind the shrinking refinancing benefit. Banks have taken a more conservative approach to loan limits and volumes this year, raising the bar not only for new loans but for refinancing as well.

"Stricter household loan regulations have made borrowing harder overall, reducing the number of refinancing cases, and primary-lender rates have risen to the point where even successful refinancers could not achieve the same level of savings as last year," a Finda official said. "Per-customer interest savings fell sharply compared with last year."

Loan rate pressure is also intensifying. The five-year fixed mortgage rates at the five major commercial banks this month range from 4.82 percent to 7.24 percent annually, with the upper end already exceeding 7 percent. Some analysts project that mortgage rates could climb into the 8 percent range if market rates rise further or banks widen their spreads and trim preferential rates to manage household lending.