Why Did Mortgage Loan Interest Rates Rise Despite the Drop in KOFIX? (Comprehensive)

Banks Change Cost Calculation Standards
Credit Loan Interest Rates Become Lower

[Asia Economy Reporter Kim Min-young] Although the COFIX (Cost of Funds Index), which serves as the benchmark for variable-rate mortgage loan interest rates in the banking sector, has dropped to a record low of 0.81%, the mortgage loan rates at major commercial banks have slightly increased instead. Banks explain this is due to changes in the cost calculation standards. Since unsecured personal loans can be borrowed at interest rates as low as the low 1% range annually, there is a phenomenon where unsecured personal loan rates are lower than mortgage loan rates.

According to the banking sector on the 19th, KB Kookmin Bank set the COFIX-linked variable-rate mortgage loan interest rates based on new loan amounts reflecting the "July COFIX" at 2.23% to 3.73% annually starting from that day. Compared to the previous day, both the upper and lower limits decreased by 8 basis points (1bp = 0.01 percentage points), but it is 2bp higher than on the 16th of last month when the June COFIX was first applied.

Kookmin Bank applied interest rates of 2.21% to 3.71% from July 16 to 30, and 2.31% to 3.81% from July 31 to August 15.

NH Nonghyup Bank, which surprised the market last month by introducing products with rates in the low 1% range (1.96% to 3.57%), also saw its mortgage loan rates exceed 2%. The rates applied on this day were 2.04% to 3.65%, an increase of 8bp compared to the 16th of last month.

A banking sector official explained, "There was a change in the bank's own cost calculation standards on the 31st of last month, which caused the rates to rise compared to the previous month."

COFIX is calculated based on the weighted average interest rates of funds raised by eight banks, including Shinhan, Kookmin, Hana, and Woori Banks. Banks add margin rates and preferential rates to the COFIX announced in mid-month to set and disclose the mortgage loan interest rate benchmarks for the relevant period. Kookmin Bank raised the COFIX-based mortgage loan (6-month variable) interest rate by 10bp for new loans handled from the 31st of last month. On the same day, Nonghyup Bank also raised its variable mortgage loan interest rate by 16bp compared to the previous day, considering the funding costs reflected in the margin rate.

A Nonghyup Bank official said, "We adjust costs by reflecting funding costs four times a year on a fixed schedule," adding, "We calculated costs including the rise in financial bond rates in the second quarter and reflected them at the end of July."

Woori Bank applied rates of 2.30% to 3.90% starting from this day. This is 8bp lower than the previous day and 6bp lower than the 16th of last month, moving in the same direction as the COFIX decline. The mortgage loan rates at Shinhan and Hana Banks, which calculate rates daily, remained the same as the previous day at 2.31% to 3.56% and 2.48% to 3.78%, respectively.

The new balance-based COFIX also fell by 0.07 percentage points to 1.11%, but for similar reasons, Nonghyup Bank applied rates of 2.34% to 3.95%, which is 9bp higher. Kookmin Bank (2.45% to 3.95%) and Woori Bank (2.60% to 4.20%) lowered their rates by 7bp and 5bp respectively compared to the 16th of last month, while Shinhan and Hana Banks maintained the same rates as the previous day at 2.31% to 3.56% and 2.18% to 3.48%, respectively.

Meanwhile, it is easy to find unsecured personal loan products with interest rates in the low 1% range at major banks. Shinhan Bank's lowest interest rate for salaried worker personal loans is 1.75% as of this day, and Nonghyup Bank also announced refinancing loan products with limits of 150 million KRW at rates of 1.67% to 3.07%. However, these rates apply only when refinancing from other banks or for smartphone-exclusive loans, large corporations, public officials, and high-quality customers with credit ratings of 1 to 2, so the actual rates applied to individuals may vary.

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