KB Kookmin Bank Drops by About 0.6 Percentage Points
Woori Bank and NH Nonghyup Also Cut by 0.3 Percentage Points
Still, 7 out of 10 Choose Fixed Rates
Due to Lower Rates Compared to Variable Rates
On the 16th, the variable interest rates on mortgage loans at commercial banks fell again. KB Kookmin Bank lowered its rates to 4.33~5.73% that day, a decrease of 0.59 percentage points in just one day. Woori Bank (5.10~6.10%) and NH Nonghyup (4.22~5.53%) also dropped by 0.29 percentage points.
The decline in interest rates was influenced by a slight drop in banks' deposit rates in February, which caused the COFIX (Cost of Funds Index) to slip. The COFIX, which serves as the benchmark for mortgage loan rates, was announced at 3.53% the previous day. It fell by 0.29 percentage points compared to January, marking a decline for three consecutive months.
COFIX is the weighted average interest rate of funds raised through deposits and savings accounts at eight domestic banks. When COFIX falls, it means banks can procure loan funds at lower interest costs than before. This effect leads to a corresponding drop in loan interest rates.
Although variable interest rates are trending downward, fixed rates have become more popular among borrowers visiting banks recently. At commercial banks including KB Kookmin Bank and Shinhan Bank, it is said that "7 out of 10 people taking out mortgage loans these days choose fixed rates." This is because fixed mortgage rates are currently lower than variable rates.
The largest interest rate gap among banks reached about 1.5 percentage points. For example, on the 15th, Hana Bank's fixed rates ranged from 4.14% to 4.74%, significantly lower than its variable rates (5.59% to 6.19%). Since the end of last year, other commercial banks have also had fixed rates below variable rates, and this trend has continued, leading many to opt for fixed rates.
Typically, fixed rates are set higher than variable rates to reduce banks' risk losses. However, due to concerns about an economic downturn, the yield curve has inverted (long-term bond yields falling below short-term bond yields), changing the situation. As of the 15th, the 5-year bank bond (AAA) yield was 4.095%, about 0.5 percentage points lower than earlier this month. Although COFIX is also on a downward trend, the decline in long-term bank bond yields has been greater, resulting in lower fixed rates.
A representative from a commercial bank explained, "Since the collapse of Silicon Valley Bank (SVB), bond yields are expected to fall further, so fixed mortgage rates may continue to decrease for the time being. Customers borrowing hundreds of millions of won will naturally choose the cheaper option, and after three years, they can switch without paying early repayment fees. Therefore, when rates drop, they can compare with variable rates and switch to the lower one."
According to the Bank of Korea's economic system, in January this year, the proportion of fixed-rate loans among new household loans was 47.2%, while variable-rate loans accounted for 52.8%. Compared to July last year, when the proportions were 17.5% and 82.5% respectively, the number of people choosing fixed rates has significantly increased. This trend is expected to continue growing when statistics for February and March are released.
© The Asia Business Daily(www.asiae.co.kr). All rights reserved.
