Mortgage Loan Interest Rates Drop to 3% Range... Lowest in 20 Months

January Bank Mortgage Loan Interest Rate 3.99%
Lowest Since May 2022

A real estate mortgage loan interest rate board is posted on the exterior wall of a branch of a major bank in Seoul. Photo by Jinhyung Kang aymsdream@

Interest rates on household loans in the banking sector have been declining for two consecutive months. In particular, the mortgage loan interest rate stands at 3.99%, the lowest since May 2022. This is due to a drop in market interest rates such as bank bonds, driven by growing expectations of a base interest rate cut.

According to the "Weighted Average Interest Rates of Financial Institutions in January 2024" announced by the Bank of Korea on the 29th, the weighted average interest rate on household loans (based on new loan amounts) in January was 4.68% per annum, down 0.14 percentage points from the previous month.

The household loan interest rate had risen for four months from July last year (4.8%) through August (4.83%), September (4.9%), and October (5.04%), then remained steady in November (5.04%), before turning downward in December (4.82%) and continuing to decline for two months.

Seo Jeong-seok, head of the Financial Statistics Team at the Bank of Korea’s Economic Statistics Bureau, explained the cause of the decline in household loan interest rates: "It is due to the fall in COFIX (Cost of Funds Index), which is the benchmark for variable-rate bank loans, and the 5-year bank bond rates, as well as the strengthened appeal of mixed-type mortgage loan rates."

By loan type, the mortgage loan interest rate fell 0.17 percentage points from the previous month to 3.99%. The mortgage loan rate has been declining for three consecutive months since November last year. It entered the 3% range for the first time in 20 months since recording 3.90% in May 2022. Among these, the fixed-rate mortgage loan was 3.95%, down 0.22 percentage points from the previous month, and the variable-rate mortgage loan was 4.09%, down 0.05 percentage points from the previous month.

The proportion of fixed-rate household loans rose 5.4 percentage points to 49.2%, driven by increased fixed-rate mortgage loan issuance (+6.1 percentage points) centered on mixed-type mortgage loans.

The interest rate on general unsecured loans was 6.38%, down 0.2 percentage points from the previous month. The jeonse deposit loan interest rate was 4.09%, down 0.17 percentage points from the previous month. Both rates have been declining for two consecutive months.

The corporate loan interest rate was 5.22%, down 0.07 percentage points from the previous month. The large corporate loan rate was 5.16%, down 0.12 percentage points, while the small and medium-sized enterprise loan rate was 5.28%, down 0.03 percentage points.

The overall loan interest rate, including both household and corporate loans, was 5.04%, down 0.1 percentage points from the previous month. This marks the second consecutive month of decline since December last year (5.14%).

The interest rate on savings deposits at deposit banks was 3.67%, down 0.18 percentage points from the previous month, marking a decline for two consecutive months since December last year (3.85%).

Pure savings deposits fell 0.19 percentage points to 3.67%, mainly due to time deposits (-0.19 percentage points). Market-type financial products also declined 0.16 percentage points to 3.76%, led by financial bonds (-0.18 percentage points) and CDs (-0.23 percentage points).

The interest rate spread between loans and deposits, calculated by subtracting the savings deposit rate from the loan rate based on bank balances, widened by 0.08 percentage points to 1.37 percentage points. This marks the second consecutive month of expansion since December last year (1.29 percentage points).

Seo explained the reason for the widening loan-deposit interest rate spread: "It is because the decline in deposit interest rates was greater than the decline in loan interest rates."

Interest rates on deposits (based on new contracts for 1-year fixed deposits) at financial institutions other than banks all fell simultaneously: mutual savings banks (-0.16 percentage points), credit cooperatives (-0.09 percentage points), mutual finance (-0.08 percentage points), and Saemaeul Geumgo (-0.17 percentage points).

Loan interest rates (general loans, based on new contracts) fell at mutual finance (-0.08 percentage points) and Saemaeul Geumgo (-0.18 percentage points), except for mutual savings banks (+0.24 percentage points) and credit cooperatives (unchanged).