Reduced Impact of Increased Additional Interest Rate... Mortgage Loan Rates Fall for the First Time in 5 Months

Bank of Korea Reports "Weighted Average Interest Rates of Financial Institutions for December 2024"
Mortgage Loan Rate Drops to 4.25%... Down 0.05 Percentage Points, Jeonse Deposit Loan Rate Down 0.09 Percentage Points
Banks Lower Additional Interest Rates This Month... Loan-Deposit Rate Gap Expected to Narrow

Mortgage loan (jumdae) interest rates have turned downward for the first time in five months. Some banks have lowered their additional interest rates this month, leading to expectations that household loan interest rates will continue to decline gradually in the future.

According to the "Weighted Average Interest Rates of Financial Institutions for December 2024" announced by the Bank of Korea on the 24th, the loan interest rate of deposit banks (based on new contracts) last month was 4.64% per annum, down 0.12 percentage points from the previous month. The loan interest rate turned downward for the first time in four months since September last year (4.62%).

The household loan interest rate (4.72%) decreased by 0.07 percentage points, mainly due to mortgage loans and jeonse deposit loans. This marks the first decline in five months since August last year (4.08%). This was the result of a decline in the benchmark interest rate for fixed-rate mortgage loans (5-year bank bonds) and a significant reduction in the effect of increased additional interest rates for loan portfolio management by banks.

The mortgage loan interest rate fell 0.05 percentage points from the previous month to 4.25%. This is also the first decline in five months since August last year (3.51%). The fixed-rate mortgage loan interest rate (4.23%) dropped by 0.08%, while the variable-rate interest rate (4.32%) rose by 0.07%. Kim Minsu, head of the Financial Statistics Team at the Bank of Korea's Economic Statistics Bureau, explained, "The 5-year bank bond, which is the benchmark interest rate for fixed-rate mortgage loans, fell by 0.21 percentage points in December last year, whereas the COFIX (applied month basis), the benchmark for variable rates, only fell by 0.03 percentage points, resulting in this outcome."

The jeonse deposit loan interest rate (4.34%) decreased by 0.09 percentage points due to the decline in benchmark interest rates such as the 2-year bank bonds. This marks a return to a downward trend for the first time in five months since August last year (3.82%).

The general unsecured loan interest rate (6.15%) fell by 0.02 percentage points from the previous month as the short-term bank bond benchmark interest rate declined. This is the first decline in one month.

The downward trend in household loan interest rates is expected to continue moderately. Kim said, "The variable interest rate on household loans is expected to be affected by the trend of base rate cuts," adding, "The fixed interest rate is influenced by the benchmark interest rate, which is the long-term market rate (5-year bank bonds), so it will be affected by changes in the 5-year bank bond rate." Since banks have started lowering additional interest rates this year, if the long-term market interest rate does not rise, household loan interest rates are also expected to show a gradual decline.

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The corporate loan interest rate (4.62%) fell by 0.14 percentage points, turning downward after one month. As the base rate cut led to a decline in the market interest rate, the main benchmark for corporate loans, both large corporations (-0.14 percentage points) and small and medium enterprises (-0.12 percentage points) saw decreases.

The interest rate on savings deposits (based on new contracts) was recorded at 3.21%, down 0.14 percentage points from the previous month due to the decline in deposit interest rates and other factors. The pure savings deposit interest rate fell 0.14 percentage points to 3.22%, mainly due to time deposits (-0.14 percentage points), while the market-type financial product interest rate dropped 0.14 percentage points to 3.17%, mainly due to financial bonds (-0.16 percentage points).

The loan-deposit interest rate spread (loan interest rate minus savings deposit interest rate) widened by 0.02 percentage points to 1.43 percentage points. This marks the fourth consecutive month of widening since September last year (1.22 percentage points). However, some banks have lowered additional interest rates this month, increasing the possibility of narrowing in the future.

The proportion of fixed-rate household loans (46.8%) fell by 0.3 percentage points due to a decrease in fixed-rate mortgage loan issuance.

Deposit interest rates at non-bank financial institutions all declined: mutual savings banks (-0.17 percentage points), credit cooperatives (-0.03 percentage points), mutual finance (-0.04 percentage points), and Saemaeul Geumgo (-0.02 percentage points). Loan interest rates fell at savings banks (-0.57 percentage points), credit cooperatives (-0.08 percentage points), and Saemaeul Geumgo (-0.15 percentage points), while mutual finance loan rates rose by 0.06 percentage points.