Despite COFIX's Record Low Drop, Mortgage Loan Rates 'Reverse Course' (Comprehensive)

Banks Tighten Regulations on Mortgage Loans Following Personal Loans
Adjusting Additional Interest Rates and Reducing Preferential Rate Benefits

[Image source=Yonhap News]

[Asia Economy Reporter Kim Min-young] As household loans soar to an all-time high, the government has begun tightening credit loans, while major commercial banks have raised variable interest rates on mortgage loans despite a decline in COFIX (Cost of Funds Index). This is interpreted as banks adjusting the pace of mortgage loans by increasing their own additional interest rates and reducing preferential interest rate benefits.

According to the Bankers Association on the 16th, the COFIX based on new contracts in August was 0.80%, down 0.01 percentage points from the previous month (0.81%). It has been declining for nine consecutive months and has remained in the 0% range for three months.

During the same period, the COFIX based on new balances also recorded 1.07%, down 0.04 percentage points from the previous month. The COFIX based on existing balances (1.36%) also fell by 0.06 percentage points.

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

Mortgage Loan Rates Rise Despite COFIX Decline

However, mortgage loan interest rates affected by COFIX have slightly increased. The decline in COFIX means that banks incurred lower costs when raising funds, but the interest rates have 'moved in the opposite direction.'

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% per annum. This is 0.39 percentage points higher than on July 19 (2.23% to 3.73%), the first day reflecting July’s COFIX.

NH Nonghyup Bank also raised its rates. The bank’s mortgage loan interest rates based on the new COFIX today are between 2.23% and 3.64%, up 0.19 percentage points from July 19 (2.04% to 3.65%).

During the same period, Shinhan Bank and Hana Bank also raised their mortgage loan rates from 2.31%?3.56% and 2.48%?3.78% to 2.64%?3.89% and 2.61%?3.91%, 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%?3.88%.

There is an interpretation that banks have started to slow down due to the recent sharp increase in household loans. Banks have changed the criteria for calculating additional interest rates and reduced preferential interest rate benefits. Additional interest rates are independently set by banks considering operational costs, credit premiums, and risk management costs.

Raising Additional Interest Rates and Reducing Preferential Rates

Some banks abolished branch manager preferential interest rates from last month and also eliminated general preferential interest rates (0.10 percentage points). A bank official said, “Mortgage loan interest rates rose as adjustments to preferential interest rates and changes in the loan portfolio were reflected.” Another bank official explained, “By adjusting some of the preferential interest rates applied to mortgage loans, the minimum and maximum interest rate ranges increased.”

As of the end of last month, the mortgage loan balance of the five major banks reached 456.9836 trillion won, and the credit loan balance was 124.2747 trillion won. Financial authorities are concerned about the increasing trend of household debt and plan to strengthen monitoring and manage it by reducing credit loan limits for high-credit borrowers.

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