Variable Mortgage Rates 4.61~6.79%
Higher Than Fixed Rates
But Demand Rises on Expectations of Rate Cuts
#Office worker Heo Jin-young (32, Busan) recently took out a loan of about 300 million KRW using a pre-sale right as collateral to pay the remaining balance on an apartment. After deliberating between variable and base interest rates, he ultimately chose a variable-rate mortgage loan product. Heo explained, "Considering the trends of base interest rates in Korea and the US, I thought the loan interest rates had peaked and would go down, so I opted for a variable rate."
#Kim Kyung-han (29, Seoul), an office worker planning to take out a jeonse loan ahead of his wedding later this year, also said, "If it had been last year, I would have chosen a fixed rate, but now I don't think rates will rise further, so I'm also considering a variable rate."
Due to the Bank of Korea's consecutive base rate freezes, new borrowers are increasingly struggling to choose between variable and fixed interest rates. Although fixed rates are currently low, the growing expectation that rates will fall in the future is driving demand for variable rates.
According to the financial sector on the 12th, the fixed interest rates (mixed type) for mortgage loans at the five major commercial banks?KB Kookmin, Shinhan, Hana, Woori, and NH Nonghyup?were recorded at 4.24?5.99% (based on principal and interest installment repayment). The lower end of the rates was formed by KB Kookmin Bank at 4.24%, Shinhan Bank at 4.52%, NH Nonghyup Bank at 4.55%, Hana Bank at 4.68%, and Woori Bank at 4.99%. Variable mortgage loan rates were relatively higher than fixed rates, ranging from 4.61% to 6.79% (based on principal and interest installment repayment). This was influenced by the COFIX (Cost of Funds Index) for new loans falling for three consecutive months, dropping nearly 2 percentage points.
While fixed rates are advantageous at present, some opinions suggest that variable rates may be better in the long term. A banking sector official predicted, "It is realistically difficult for the US and Korea to raise rates further, so more people will look for variable rate products expecting rates to fall." The explanation is that choosing a variable rate, which may decrease, is better than opting for a fixed rate maintained at a high level.
In fact, the trend of variable and fixed interest rate proportions in new household loans in the banking sector showed that the share of variable rates increased during periods of base rate decline. The proportion of variable rates, which was 53% in 2019, surged to 70?80% during the full-scale low-interest period of 2020?2021.
However, some view fixed rates as safer due to the high volatility of interest rates. An industry insider said, "The current volatility is severe and unpredictable, making it difficult to judge which is advantageous," and emphasized, "If you can bear some risk from interest rate fluctuations, fixed rates are not a bad choice." Another banking sector official also suggested, "If you take out a loan with a fixed rate and it becomes clear that variable rates are more favorable, refinancing is a good option."
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