Savings and Deposit Rates Lowered... Only Mortgage Loans Rise Alone

Bank of Korea Announces "Weighted Average Interest Rates of Financial Institutions for January 2025"
Mortgage Loan Rate Rises Again to 4.27% After One Month
Deposit and Savings Rates Fall... Loan-Deposit Rate Spread Widens to 1.46%

Mortgage loan interest rates handled by banks have risen again after a month.

According to the weighted average interest rates of financial institutions for January announced by the Bank of Korea on the 28th, the mortgage loan interest rate (based on new contracts) at deposit banks last month was 4.27% per annum, up 0.02 percentage points from the previous month.

The mortgage loan interest rate had been rising from August last year (3.51%) through November, but turned downward for the first time in five months due to some banks lowering their additional interest rates. However, the rate rose again after just one month. Specifically, the fixed-rate mortgage loan interest rate (4.26%) increased by 0.03 percentage points, and the variable rate (4.34%) rose by 0.02 percentage points.

Kim Minsu, head of the Financial Statistics Team at the Bank of Korea’s Economic Statistics Department 1, explained, "The fixed-rate mortgage loans, which account for most of the mortgage loans, saw the upward trend in additional interest rates almost stop from mid-January, but the variable rates continued to rise through January."

He added that the effect of banks lowering additional interest rates is expected to be reflected in February. Kim said, "The reductions in additional interest rates by banks after mid-January are expected to be reflected in loan interest rates starting February. Fixed rates have risen sharply since August last year, while variable rates have increased moderately. The additional interest rates for fixed rates are still higher."

Household loans, including mortgage loans, fell by 0.07 percentage points from the previous month to 4.65% per annum. This decline continued for two consecutive months since December last year, mainly due to jeonse deposit loans and general credit loans. This was influenced by the decline in benchmark interest rates such as short-term and two-year bank bonds and COFIX.

Jeonse deposit loan interest rates dropped by 0.18 percentage points to 4.16% per annum, and general credit loan rates fell by 0.57 percentage points to 5.58% per annum. The sharp decline in general credit loan rates was due to the drop in short-term bank bond rates, a benchmark interest rate, and an increase in the proportion of high-credit borrowers at some banks.

Corporate loan interest rates decreased by 0.12 percentage points from the previous month to 4.5% per annum. The decline in short-term market interest rates, influenced by the base interest rate cuts, led to reductions in rates for both large and small-to-medium enterprises.

Savings deposit interest rates (based on new contracts) fell by 0.14 percentage points to 3.07% per annum due to the decline in market interest rates. This marks a four-month consecutive downward trend since October last year (3.37%). Specifically, pure savings deposit rates, centered on time deposits, dropped by 0.14 percentage points to 3.22% per annum. Market-type financial product rates, mainly CD (Certificate of Deposit) rates, decreased by 0.13 percentage points to 3.04%.

The interest rate spread between loans and savings deposits (loan interest rate minus savings deposit interest rate) widened by 0.03 percentage points to 1.46 percentage points. This marks the fifth consecutive month of expansion since September last year (1.22 percentage points). However, since banks began lowering additional interest rates from mid-January, the effect is expected to appear from February, increasing the likelihood of the spread narrowing in the future.

The proportion of fixed-rate household loans rose by 9.3 percentage points from the previous month to 56.1%. This is the first increase in six months since August last year (68%). Kim explained, "In the second half of last year, banks reduced their main product, fixed-rate mortgage loans, to manage the total volume of household loans. As mortgage loan sales resumed at the beginning of the year, the fixed-rate proportion also increased." The fixed-rate share of mortgage loans rose to 88.9%, marking an increase after six months.

At the end of last month, the total deposit interest rate based on balances was 2.4% per annum, down 0.04 percentage points from the previous month. The total loan interest rate was 4.68% per annum, down 0.05 percentage points. The interest rate spread based on balances narrowed by 0.01 percentage points to 2.28 percentage points.

Meanwhile, deposit interest rates at non-bank financial institutions declined across the board: mutual savings banks (-0.14 percentage points), credit cooperatives (-0.03 percentage points), mutual finance (-0.04 percentage points), and Saemaeul Geumgo (-0.03 percentage points). Loan interest rates (based on general loans) decreased at credit cooperatives (-0.12 percentage points) and mutual finance (-0.01 percentage points), while increasing at mutual savings banks (0.95 percentage points) and Saemaeul Geumgo (0.25 percentage points).