Variable Interest Rates on Mortgage Loans Approaching 3% Range
Existing Borrowers May Feel Interest Rate Cuts Within Q2
Interest rates in the 3% range have reappeared. Both the lower bounds of mortgage loan and jeonse deposit loan interest rates have dropped to the 3% range. New borrowers can now borrow money at much lower rates compared to the peak rates in the second half of last year. Borrowers who had been struggling with increased interest payments, such as those who borrowed to the maximum (yeongkkeuljok) and jeonse tenants, are expected to gradually benefit from the interest rate decline starting from the second quarter of this year. The reduction in loan interest rates was influenced by the Bank of Korea's two consecutive rate freezes and growing expectations that rate hikes have ended, which led to a decline in bank bond yields.
According to the financial sector on the 14th, the interest rates of the five major banks (KB, Shinhan, Woori, Hana, NH) as of the 12th were 3.69?5.85% for fixed-rate mortgage loans (fixed for 5 years then variable). The variable mortgage loan rates ranged from 4.18% to 6.20%, with the lower bound on the verge of entering the 3% range. A representative from a commercial bank said, "Fixed rates respond more quickly to market influences because they are affected daily by bank bond yields, whereas variable rates, which change monthly, react more slowly," adding, "If the COFIX (Cost of Funds Index) falls on the 17th, variable mortgage loan rates will also drop to the 3% range."
In fact, the COFIX based on new loan amounts peaked at 4.34% in December last year and fell by 0.81 percentage points over three months until March this year. COFIX is the weighted average interest rate of funds raised by eight domestic banks and determines the movement of loan interest rates. It reflects changes in interest rates of deposit products such as actual deposits, savings, and bank bonds handled by banks.
Currently, the lower bounds of both variable and fixed interest rates for jeonse loans at the five major banks are in the 3% range. Variable rates range from 3.74% to 5.96%, and fixed rates from 3.46% to 5.86%. Another commercial bank official said, "As interest rates generally decline, there will be changes in household loan balances, which had only been decreasing last year."
New borrowers can borrow at minimum rates in the 3% range, but existing borrowers will need more time to feel the effects of the rate cuts. This is because variable-rate loan products usually adjust interest rates once every six months. The COFIX and bank bond yields, which are the basis for variable rates, remained high throughout the second half of last year but have shown a slight downward trend since January this year. Considering the variable rate recalculation cycle, existing borrowers are expected to receive notification texts from banks within the second quarter informing them that their rates have dropped compared to before.
The Financial Supervisory Service stated, "New loan interest rates continue to decline, and the rising trend in balance-based interest rates is also significantly slowing down," adding, "Considering that it takes some time for the effect of declining new loan interest rates to be reflected in balance-based rates, balance-based interest rates are expected to shift to a downward stabilization trend in the second quarter unless market interest rates turn upward."
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