[The Other Side of Household Loans] ③ Mortgage Loan Interest Rates Near 7%... "Switch to Fixed if Variable Exceeds 5%"

Since Last December, Commercial Bank Interest Rates Near 7%
Impact of Rising Financial Bond Yields Due to US Tightening Policy
Annual 3% Range Mortgage Loans Disappear

Mortgage loan interest rates at commercial banks have risen to nearly 7% per annum. This is the highest level since December last year. On the 24th, the variable interest rates of the five major banks (Kookmin, Shinhan, Hana, Woori, Nonghyup) were recorded at 4.05% to 6.94%. Fixed interest rates ranged from 3.90% to 6.31%.

The main reason for the sharp rise in interest rates, which were expected to fall earlier this year, is the tightening stance of the U.S. Federal Reserve (Fed). Recently, U.S. bond yields increased, affecting the Korean market as well. As the interest rates on financial bonds, which banks use to raise loan funds, rose, banks immediately reflected this in their loan interest rates.

A customer is receiving consultation at the bank loan consultation desk. Photo by Kang Jin-hyung aymsdream@

Among the five major banks, Kookmin, Woori, and Nonghyup banks follow COFIX (Cost of Funds Index) for their variable rates, while Shinhan and Hana banks base theirs on financial bond yields. All banks use financial bond yields as the basis for their fixed interest rates.

The 6-month and 1-year financial bond yields started at 4.0% in January this year, dropped to 3.5% in April, and have risen again to around 3.8% as of August. During the same period, the 5-year bond yield started at 4.3%, fell to 3.8%, and then increased to 4.4%.

"Think about whether you can repay before buying a house"

The Bank of Korea raised the base interest rate by 0.5 percentage points, and the real estate transaction market is expected to experience a prolonged winter. On the 13th, a red light was on at a traffic signal near an apartment in downtown Seoul.

As interest rates rose, internet banks, which many mortgage borrowers had flocked to, no longer offer loans in the 3% range. As of the 24th, Kakao Bank's mortgage loan interest rates were 4.07% to 6.94% for variable rates and 4.17% to 6.77% for fixed rates. K Bank showed similar rates, with variable rates at 4.13% to 5.98% and fixed rates at 4.22% to 5.25%. However, K Bank's mortgage refinancing rates were somewhat lower, ranging from 3.69% to 5.68%.

Some voices suggest that the recent adjustment of internet banks' interest rates, which had been maintained in the 3% range, was due to financial authorities pointing to internet bank mortgage loans as one of the causes of household debt increase.

At this point, consumers face the dilemma of choosing between fixed and variable interest rates. A representative from a commercial bank said, "Borrowers currently paying variable mortgage rates above 5% should switch to fixed rates in the 4% range. If variable rates drop later, they can switch back."

The Bank of Korea also kept the base rate steady at 3.5% as of the 24th. Lee Chang-yong, Governor of the Bank of Korea, said, "It is unlikely that financial costs (interest rates) will fall to 1-2% per annum as they did in the past decade. Real estate investment should be made considering whether one can afford it."