COFIX Rebounds After One Month... Home Mortgage Interest Rates Begin Upward Trend

Rising Trend Expected for a While Due to Base Rate Hike
Banks That Lowered Mortgage Rates in Trouble
Consumers 'Frowning' Ahead of Moving Season

[Image source=Yonhap News]

[Asia Economy Reporter Minwoo Lee] The Cost of Funds Index (COFIX), which serves as the benchmark for variable-rate mortgage loans, rebounded after a month and recorded its highest level in 2 years and 8 months. As the U.S. Federal Reserve (Fed) and the Bank of Korea are expected to continue raising interest rates, it is anticipated that mortgage loan interest rates in the banking sector will continue to rise for the time being.

According to the Korea Federation of Banks on the 16th, the COFIX based on new contracts in February rose by 0.06 percentage points (p) from the previous month to 1.70%. This is the highest level since June 2019 (1.78%). Accordingly, the new COFIX-based mortgage loan interest rates were adjusted to 3.52?5.02% at Kookmin Bank, 3.85?4.86% at Woori Bank, and 3.48?4.38% at NongHyup Bank. The upper limit of the interest rates exceeded 5%.

However, Shinhan Bank, which uses the 5-year financial bond as an indicator, lowered its new rate slightly by 0.01 p to 3.49?4.54%, and Hana Bank, which calculates rates based on the 6-month financial bond, also decreased its new rate by 0.01 p to 3.78?5.08% compared to the previous month.

The COFIX based on outstanding balances (1.44%) and the new outstanding balance COFIX (1.13%) also rose by 0.07 p and 0.05 p respectively from the previous month. Consequently, the new outstanding balance-based mortgage loan interest rates were adjusted upward from 3.57?5.07% to 3.62?5.12% at Kookmin Bank and from 2.85?3.76% to 2.90?3.81% at NongHyup Bank.

This reflects the full impact of the base interest rate hike. The Bank of Korea raised the base rate by 0.25 p to 1.25% in January this year. Last month, the COFIX based on new contracts slightly fell by 0.05 p due to a time lag in reflecting the rate hike, but it has now returned to its proper trajectory.

As the trend of domestic and international base rate hikes is expected to continue for the time being, mortgage loan interest rates are also likely to keep rising. The U.S. Fed is expected to raise the base rate by 25 basis points (bp; 1 bp = 0.01%) at the March Federal Open Market Committee (FOMC) meeting. The Bank of Korea, having raised the base rate from 0.50% to 1.25% over the past five months, is also expected to raise rates two to three more times within this year. According to the minutes of the Bank of Korea’s 4th Monetary Policy Committee meeting in 2022 released yesterday, four out of six committee members, excluding Governor Lee Ju-yeol, stated that additional rate hikes are necessary.

There are concerns that this trend will increase consumer anxiety. Banks, which had previously restrained lending, have started to attract customers again, and demand is expected to surge ahead of the moving season. A banking industry official said, "Not only commercial banks but also internet-only banks have lowered loan interest rates, but with market interest rates rising, it is a difficult situation. There is also a factor where market interest rates have preemptively reflected concerns about the Bank of Korea’s rate hikes, so we need to observe future trends, but customers cannot help but feel somewhat anxious."

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