Housing Loan Temperature Gap... Variable Rate Falls While Mixed Rate Clearly Rises

Concerns Over Growing Interest Rate Gap Between Variable and Mixed Types

KOFIX Interest Rate Trends
(Graph: KB Management Research Institute 'Understanding Data to See the Housing Market')

[Asia Economy Reporter Park Sun-mi] The gap between variable interest rates and mixed (fixed) interest rates on mortgage loans is becoming more pronounced. This is due to the decline in the COFIX (Cost of Funds Index), which is used as the benchmark interest rate for variable mortgage loans last month. Borrowers who preferred variable rates because of the 'low interest' now need to consider fixed rates amid recent domestic and international inflation and the possibility of base rate hikes, but the widened interest rate gap is causing them to hesitate.

According to the financial sector on the 21st, the variable interest rates based on new loan amounts at the five major domestic banks?KB Kookmin, Shinhan, Hana, Woori, and NH Nonghyup?are formed at levels between 2.35% and 3.99%. The COFIX for new loan amounts in April, announced by the Korea Federation of Banks, fell by 0.02 percentage points from the previous month to 0.82%, marking the lowest level since August last year (0.80%). The balance-based COFIX and new balance-based COFIX, which gradually reflect market interest rate changes, also dropped by 0.02 and 0.03 percentage points to 1.04% and 0.81%, respectively. Considering that variable mortgage loan rates were between 2.33% and 4.16% a year ago, the current levels are not significantly different or have slightly decreased.

On the other hand, the mixed (fixed) mortgage loan rates, which switch from fixed to variable after five years of subscription, show the opposite trend. The current rates range from 2.87% to 4.43%, about 0.5 percentage points higher than variable rates. As financial bonds, including bank bonds, are on the rise, the mixed rates, which are based on these, are also increasing rapidly. A year ago, the mixed mortgage loan rates at the five major banks were between 2.31% and 4.11%, actually lower than variable rates. Over the past year, rates have risen by more than 0.5 percentage points, widening the gap with variable rates.

According to the Financial Supervisory Service, as of the end of last year, 50.3% of mortgage loan users, including those with jeonse deposit loans, use variable interest rates. More than half are thus exposed to interest rate fluctuations due to the low interest rates.

If interest rates rise significantly in the future, loans with variable rates will face increased interest repayment burdens, making it advantageous to switch to fixed rates. However, as mixed mortgage loan rates rise sharply, financial consumers who are newly subscribing to mortgage products or switching loans are inevitably facing difficult decisions.

A bank official said, "Concerns about interest rate hikes are growing, so consumers are likely to have many worries when choosing between variable and mixed mortgage loan products. If only current interest rates are considered, variable rates are more advantageous, but the possibility that the rate hike period may come sooner than expected makes the choice difficult." KB Financial Group Management Research Institute recently explained in a report, "Variable interest rate products are more preferred during periods of falling rates, so if rates are expected to rise in the future, the popularity of variable rate products decreases. However, because there is a high preference for products with low rates at present, products with lower rates tend to sell more in practice."

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