Nearly 2 Million Households Trapped in Debt Cycle

An estimated 1.9 million households barely manage to keep up interest payments on their loans.

According to banking sources, households that owed 75 percent of the W294.3 trillion (US$1=W1,109) worth of housing loans only serviced the interest without repaying any of the principal. Any rise in the record-low interest rates could have a severe impact on them and trigger a major financial crisis.

In an analysis of statistical data, the Hyundai Research Institute found that the annual disposable income of households that managed to pay only the interest on their loans stood at W41.21 million, compared to W42.75 million for households that are able to repay the principal.

Households that repay a portion of the principal every month were thought to have less disposable income than households that did not, but the data show the opposite.

Households that paid only interest had loans over W118.3 million on average, compared to W95.6 million for households that repaid some of the principal. This suggests the former often get deeper into debt just to make ends meet.

Cho Kyu-rim of the institute said, "It looks like many people who are only able to pay interest simply don't make enough money to repay the principal. No deleveraging or decrease in debt is taking place."

The situation is especially dire among the so-called "house poor" in their 50s and 60s -- people who borrowed money to buy homes when real estate prices were high but cannot repay their loans due to dwindling disposable income when they retire.

The institute estimates that there are more than 360,000 such households.