COFIX Downtrend Continues... Bank Mortgage Loans to Decline Further

[Asia Economy Reporter Minyoung Kim] The COFIX (Cost of Funds Index), which serves as the benchmark for variable-rate mortgage loans in the banking sector, continues to decline.

According to the Bankers Association on the 18th, the COFIX based on new contracts last month was 0.81%, down 0.07 percentage points from the previous month. This marks the eighth consecutive month of decline. The drop is due to major commercial banks consecutively lowering deposit interest rates, and the COFIX based on new contracts has remained in the 0% range for two consecutive months.

Additionally, the new outstanding balance-based COFIX also fell by 0.07 percentage points to 1.11%. This is the 13th consecutive month of decline since its first announcement on July 15 last year. The existing outstanding balance-based COFIX (1.41%) also dropped by 0.07 percentage points, marking 16 consecutive months of decline.

COFIX refers to the weighted average interest rate of funds raised by eight major commercial banks, including Shinhan, KB Kookmin, Hana, and Woori Bank. When banks raise or lower interest rates on deposit products such as actual deposits, savings, and bank bonds, COFIX rises or falls accordingly.

The outstanding balance-based COFIX includes fixed deposits, installment savings, mutual installment savings, housing installment savings, negotiable certificates of deposit, repurchase agreements, commercial paper issuance, and financial bonds (excluding subordinated bonds and convertible bonds).

The new outstanding balance-based COFIX adds other deposits, borrowings, and settlement funds to the products covered by the existing outstanding balance COFIX.

While the new and existing outstanding balance-based COFIX generally reflect market interest rate changes gradually, the COFIX based on new contracts is calculated based on funds newly raised during the month, so it reflects market interest rate changes more quickly.

For customers who have already taken out variable-rate mortgage loans, if the additional interest rate and preferential interest rate remain unchanged, the loan interest rate moves by the amount of change in the COFIX that was used as the benchmark at the time of the initial loan.

From the 19th, when new mortgage loans are taken out, the interest rate reflecting the July COFIX will be applied, so loan interest rates are expected to fall further. NongHyup Bank already offers mortgage loan products with a minimum annual interest rate in the 1% range, but due to strict conditions such as being a public official or large corporation employee, automatic transfers, or subscription to installment savings, the actual interest rate is known to be in the low 2% range.

A Bankers Association official explained, “Those who wish to take out COFIX-linked loans need to fully understand these characteristics of COFIX and carefully select loan products.”

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