Mortgage Loan Interest Rates Enter 4% Range... First Time Since December Last Year

Bank of Korea 'October Financial Institutions Weighted Average Interest Rate'
Mortgage Loan Interest Rate Enters 4% Range for the First Time in 10 Months
Loan-Deposit Interest Rate Spread Expands for 2 Consecutive Months

Last month, the interest rate on mortgage loans (Judaemdae) entered the 4% range for the first time since December last year (4.16%). This was due to banks raising the additional interest rates to manage household loans, as well as an increase in the 5-year bank bond rate, which is a benchmark interest rate.

According to the "October Weighted Average Interest Rates of Financial Institutions" announced by the Bank of Korea on the 27th, the loan interest rate (weighted average, based on new contracts) of deposit banks last month was 4.67% per annum, up 0.05 percentage points from the previous month. The loan interest rate has been rising for two consecutive months since September (4.62%).

The mortgage loan interest rate among household loans rose by 0.31 percentage points from the previous month to 4.05% per annum. This is the largest increase in 2 years and 1 month since September 2022 (0.44 percentage points). The mortgage loan interest rate had remained in the 3% range this year after December last year (4.16%), but re-entered the 4% range after 10 months. The fixed-rate mortgage loan interest rate rose by 0.32 percentage points from the previous month to 4.04% per annum, while the variable-rate mortgage loan interest rate increased by 0.06 percentage points to 4.14% per annum.

Kim Minsu, head of the Financial Statistics Team at the Bank of Korea's Economic Statistics Bureau, explained the reason for the rise in mortgage loan interest rates: "The 5-year bank bond rate, which is the benchmark interest rate for fixed-rate mortgage loans, increased, and banks raised additional interest rates to manage household loans."

Regarding the difference in the increase between fixed-rate and variable-rate mortgage loan interest rates, he said, "The benchmark interest rate for variable-rate mortgage loans, COFIX (Cost of Funds Index), declined, while the 5-year bank bond rate, the benchmark for fixed-rate mortgage loans, rose, causing fixed rates to increase relatively more. Variable rates rose due to the increase in additional interest rates, while fixed rates were affected by both the rise in the bank bond benchmark rate and the increase in additional interest rates."

On the other hand, corporate loan interest rates turned downward after one month. The corporate loan interest rate fell by 0.06 percentage points from the previous month to 4.71% per annum. This was due to a decline in short-term market interest rates such as negotiable certificates of deposit (CD), which are major benchmark rates for corporate loans, following a base interest rate cut, leading to decreases in loan interest rates for both large corporations (-0.02 percentage points) and small and medium enterprises (-0.10 percentage points).

The interest rate on savings deposits (based on new contracts) fell by 0.03 percentage points from the previous month to 3.37% per annum, turning downward after one month. This was influenced by the decline in market interest rates. The pure savings deposit interest rate, mainly for time deposits, dropped by 0.04 percentage points, and the market-type financial product interest rate, centered on financial bonds and CDs, decreased by 0.02 percentage points.

The interest rate spread between loan interest rates and savings deposit interest rates (deposit interest rates) widened by 0.08 percentage points from the previous month to 1.30 percentage points. The interest rate spread has been expanding for two consecutive months since September (1.22 percentage points).

The proportion of fixed-rate loans among household loans was 56.8%, down 8.6 percentage points from the previous month due to a decrease in the share of fixed-rate mortgage loans.

Deposit interest rates (based on 1-year fixed deposits) at non-bank financial institutions, including credit unions, mutual finance, and Saemaeul Geumgo, all declined. Loan interest rates (based on general loans) fell at credit unions and mutual finance, but rose at mutual savings banks and Saemaeul Geumgo.