"Buying a Home Was Already Hard... Now Mortgage Rates Hit Highest Level in Two Years"

Bank of Korea: "Weighted Average Interest Rates of Financial Institutions for January 2026"

Mortgage Loan Rate at 4.29% Per Annum...Up 0.06 Percentage Points from Previous Month

Rises for Four Consecutive Months Due to Higher Market Rates

The average interest rate on mortgage loans offered by banks has risen to its highest level in two years. This increase marks the fourth consecutive month of growth, mainly due to the rise in market rates such as bank bonds, which serve as benchmark rates. In particular, a significant increase in the five-year bank bond rate has led to a sharp drop in the proportion of fixed-rate mortgages.

According to the "Weighted Average Interest Rates of Financial Institutions for January 2026" announced by the Bank of Korea on February 27, the interest rate on mortgage loans (based on newly extended loans) at deposit banks last month was 4.29% per annum, up 0.06 percentage points from the previous month. This is the highest level in two years since January 2024 (4.30%).

The mortgage loan rate, which climbed to 4.27% in January last year, fluctuated between February and July, remained flat in August and September, and has now increased for four consecutive months since October (3.98%). Over these four months, the rate has risen by 0.31 percentage points.

Lee Hyeyoung, Head of the Financial Statistics Team 1 at the Bank of Korea, explained, "This is due to the five-year bank bond rate, which serves as a benchmark, rising by 0.07 percentage points in January." Specifically, the fixed-rate mortgage loan rate rose to 4.26%, and the variable-rate mortgage loan rate climbed to 4.40%, increasing by 0.04 and 0.08 percentage points from the previous month, respectively.

The interest rate for jeonse deposit loans was 4.06% per annum, up 0.07 percentage points from the previous month. Meanwhile, the interest rate for general credit loans fell by 0.32 percentage points to 5.55% per annum over the same period. This is attributed to the decline in short-term bank bond rates, which serve as the benchmark, and a reduction in the proportion of loans to mid- to low-credit borrowers at some banks.

Including these, the household loan interest rate rose to 4.5% per annum, up 0.15 percentage points from the previous month. This marks the fourth consecutive month of increases since October last year (4.24%).

The proportion of fixed-rate loans in household lending was 47%, down 1.9 percentage points from the previous month. In particular, the proportion of fixed-rate mortgages fell sharply from 86.6% to 75.6% in just one month-a drop of 11 percentage points. Lee commented, "As the five-year bank bond rate, which affects fixed rates, has risen, fixed-rate mortgages have become higher than variable rates, leading to a shift in demand towards variable rates."

There is also an assessment that lending rates are likely to continue rising. Lee stated, "Since lending rates are heavily influenced by market rates, and given the trend up to February 23, there has been a slight increase. It is possible that rates will rise further going forward."

Corporate loan rates fell by 0.01 percentage points to 4.15% per annum, marking a decline for the first time in three months. Due to the base effect of policy loans with low interest rates extended in the previous month, rates for large corporations rose by 0.01 percentage points to 4.09%, while rates for small and medium-sized enterprises fell by 0.03 percentage points to 4.21% per annum.

The rate on savings deposits (based on newly accepted deposits) was recorded at 2.78% per annum, down 0.12 percentage points from the previous month, due to decreases in products such as time deposits. This is the first drop in five months since September last year.

By category, the pure savings deposit rate fell by 0.12 percentage points to 2.77% per annum. The market-type financial product rate, focused on certificates of deposit (CD) and financial bonds, also declined by 0.13 percentage points to 2.82% per annum. Lee explained, "This was due to the decline in short-term market rates in January and the base effect from some banks raising rates in December last year to manage their liquidity coverage ratio (LCR) requirements."

The loan-to-deposit interest rate spread (based on newly extended loans and deposits) widened by 0.17 percentage points to 1.46 percentage points from the previous month. This marks a return to an increasing trend in the spread for the first time in five months since September of last year. On a balance basis, the loan-to-deposit spread widened by 0.01 percentage points to 2.24 percentage points.

For non-bank financial institutions, the interest rate on one-year time deposits rose across the board except for savings banks, which saw a decline of 0.02 percentage points. Credit cooperatives increased by 0.04 percentage points, mutual finance by 0.06 percentage points, and community credit cooperatives by 0.07 percentage points. As for loan rates (based on general loans), all institutions saw increases except mutual finance, which fell by 0.01 percentage points. Credit cooperatives rose by 0.06 percentage points, while savings banks and community credit cooperatives increased by 0.22 and 0.15 percentage points, respectively.

This content was produced with the assistance of AI translation services.