Bank Mortgage Loan Interest Rates Hit Record Lows... Variable or Fixed?

Impact of 5 Consecutive Months of COFIX Decline
Average of 2.656% at 5 Major Banks in March
NH Nonghyup Lowest at 2.27~3.88% Annually
Careful Comparison Needed Between Variable and Fixed Rates When Buying a Home

[Asia Economy Reporter Kim Min-young] Bank mortgage loan interest rates have fallen to historically low levels. This is due to the decline in COFIX (Cost of Funds Index), which serves as the benchmark for variable-rate mortgage loans in the banking sector.

According to the financial sector on the 18th, the COFIX based on new transaction amounts (new COFIX) was 1.20% last month, down 0.06 percentage points from March. This marks five consecutive months of decline. The COFIX based on outstanding balances also fell to 1.31%, down 0.07 percentage points from March, continuing its decline for 10 months since its first announcement in July last year. COFIX is the weighted average interest rate of deposit products through which domestic banks raise funds. Simply put, since banks have borrowed money from financial consumers at a lower cost, loan interest rates have also become cheaper accordingly.

Mortgage loan interest rates linked to COFIX also dropped across the board. Starting today, NH Nonghyup Bank applied mortgage loan interest rates based on the new COFIX at an annual rate of 2.27?3.88%, the lowest among the five major banks.

Kookmin Bank offers 2.40?3.90% annually, Woori Bank 2.71?4.31%, Hana Bank 2.740?4.040%, all at historically low levels. Shinhan Bank also adjusted its rates to 2.49?3.74% annually. Although slightly higher than the record low on the 20th of last month (2.45?3.46% annually), the rates remain low.

Mortgage loans based on outstanding balances also fell to historically low levels at all five major banks, with average rates ranging from a minimum of 2.38% to a maximum of 4.42%.

[Image source=Yonhap News]

Mixed (fixed) interest rates are also forming a ‘bottom.’ The mixed rate is based on the 5-year financial bond rate. Kookmin Bank offers the lowest at 2.13?3.63%, followed by Nonghyup Bank at 2.17?3.58%, Hana Bank at 2.309?3.609%, Shinhan Bank at 2.60?3.61%, and Woori Bank at 2.72?4.13%.

Mortgage loans actually processed at branches also recorded historically low interest rates. According to the Bankers Association, the average interest rate for loans processed in March (mortgage loans with a maturity of 10 years or more and installment repayment method) at the five major banks was 2.656%.

Even if a borrower takes out a 300 million KRW loan from a bank, the annual interest is only about 8 million KRW, which amounts to approximately 670,000 KRW per month.

Prospective homebuyers are now faced with the dilemma of which loan is more advantageous. Fixed rates are still generally cheaper, but based on the lowest interest rates, a ‘rate inversion phenomenon’ has even appeared where variable rates are lower than fixed rates. Additionally, depending on individual customers’ income, loan conditions, and preferential rates, variable rates may be more favorable. A financial sector official said, “If it is judged that the ultra-low interest rate trend will continue for the next few years, variable rates are much more advantageous,” adding, “If you do not want to worry about interest rate fluctuations, using fixed rates is also a good option.”

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