Mortgage Loan Interest Rate Gap... Variable Rates Falling While Mixed Rates Rising (Comprehensive)

Variable interest rates of the 5 major banks range from 2.35% to 3.99%
Mixed rates range from 2.87% to 4.43%

[Asia Economy Reporter Park Sun-mi] The gap between variable interest rates and mixed (fixed) interest rates on mortgage loans is becoming more pronounced. This is due to the decline in the COFIX (Cost of Funds Index), which is used as the benchmark interest rate for variable mortgage loans last month. Borrowers who preferred variable rates because of the 'lower interest' now need to consider fixed rates amid recent domestic and international inflation and the possibility of base rate hikes, but the widened interest rate gap is causing them to hesitate.

According to the financial sector on the 21st, the variable interest rates based on new loan amounts at the five major domestic banks?KB Kookmin, Shinhan, Hana, Woori, and NH Nonghyup?are formed at levels between 2.35% and 3.99%. The COFIX for new loan amounts in April, announced by the Korea Federation of Banks, fell by 0.02 percentage points from the previous month to 0.82%, marking the lowest level since August last year (0.80%). The balance-based COFIX and new balance-based COFIX, which reflect market interest rate changes gradually, also dropped by 0.02 and 0.03 percentage points to 1.04% and 0.81%, respectively. Considering that variable mortgage loan rates were between 2.33% and 4.16% a year ago, the current levels are not significantly different or have slightly decreased.

On the other hand, the mixed (fixed) mortgage loan rates, which switch from fixed to variable after five years of subscription, show the opposite trend. Current rates are between 2.87% and 4.43%, about 0.5 percentage points higher than variable rates. As financial bonds, including bank bonds, have been on the rise, the mixed rates, which are based on these, are also increasing rapidly. A year ago, the mixed mortgage loan rates at the five major banks ranged from 2.31% to 4.11%, which was actually lower than variable rates. Over the past year, rates have risen by more than 0.5 percentage points, widening the gap with variable rates.

More than half exposed to interest rate fluctuations... 고민 over variable vs. mixed (fixed) due to widened rate gap

There are two main types of interest rates for mortgage loans. One is the variable interest rate product, where rates change relatively frequently, and the other is the fixed interest rate product, where rates remain constant over a relatively long period. Variable rates fluctuate each time according to changes in the funding costs of banks, such as deposits, savings, and bonds sold in the market. Therefore, variable rates are more preferred during periods of falling interest rates.

According to the Financial Supervisory Service, as of the end of last year, 50.3% of consumers using mortgage loans, including jeonse deposit loans from banks, were using variable interest rate products amid a low-interest rate environment. Due to the low interest, more than half are exposed to interest rate fluctuations.

If interest rates rise significantly in the future, loans with variable rates will face increased interest repayment burdens, making it advantageous to switch to fixed rates. However, as mixed mortgage loan rates rise sharply, financial consumers who are newly subscribing to mortgage loan products or switching loan products inevitably face deeper concerns.

An official from a bank said, "Concerns about interest rate hikes are growing, so consumers are likely to have many worries when choosing between variable and mixed mortgage loan products. If you only consider the current interest rates, variable rates are more advantageous, but because the interest rate hike period may come sooner than expected, the choice is not easy."

KB Management Research Institute explained in a recent report, "Variable interest rate products are more preferred during periods of falling interest rates, so if interest rates are expected to rise in the future, the popularity of variable rate products decreases somewhat. However, because there is a high preference for products with low interest rates immediately, in reality, products with lower rates tend to sell more."