Despite Record Low COFIX, Mortgage Loan Interest Rates Increase

Bank Preferred Interest Rates and Additional Interest Rate Adjustments
Housing Mortgage Loan Interest Rates Increased Compared to Last Month

[Asia Economy Reporter Kim Min-young] Although the COFIX (Cost of Funds Index), which serves as the benchmark for variable interest rates on mortgage loans at major commercial banks, has fallen to an all-time low, the mortgage loan interest rates at major commercial banks have actually increased. This is interpreted as a result of banks raising their own additional interest rates and reducing preferential interest rate benefits.

According to the Bankers Association on the 16th, the COFIX based on new transactions in August was 0.80%, down 0.01 percentage points from the previous month (0.81%). During the same period, the COFIX based on new balances also recorded 1.07%, down 0.04 percentage points from the previous month, and the COFIX based on outstanding balances fell 0.06 percentage points to 1.35% compared to the previous month.

COFIX refers to the weighted average interest rate of funds raised by eight commercial banks including Shinhan, KB Kookmin, Hana, and Woori Bank. It rises or falls reflecting increases or decreases in the interest rates of deposit products such as actual deposits, savings, and bank bonds handled by banks.

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

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

According to the banking sector, KB Kookmin Bank’s mortgage loan interest rates based on the new COFIX applied from today range from 2.62% to 3.82%. This is 0.39 percentage points higher than on July 19 (2.23% to 3.73%), the first day reflecting the July COFIX.

NongHyup Bank’s rates also increased. The mortgage loan interest rates based on the new COFIX at NongHyup Bank today were 2.23% to 3.64%, up 0.19 percentage points compared to July 19 (2.04% to 3.65%).

Shinhan Bank and Hana Bank also raised their mortgage loan interest rates during the same period from 2.31%?3.56% and 2.48%?3.78% to 2.64%?3.89% and 2.612%?3.912%, respectively.

Only Woori Bank applied rates that were 0.02 percentage points lower for both the minimum and maximum rates compared to last month, at 2.28% to 3.88%.

Banks agree that despite the decline in COFIX, mortgage loan interest rates rose because the criteria for calculating additional interest rates changed. Additional interest rates are independently set by banks considering operating costs, credit premiums, and risk management costs.

An official from one bank said, “Mortgage loan interest rates rose as preferential interest rates were adjusted and the loan portfolio was changed.” Another bank official said, “By partially adjusting the preferential interest rates reflected in mortgage loan interest rates, the minimum and maximum interest rate ranges increased.”

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