"Even During Interest Rate Hikes, Variable Rates... Switch to Fixed Rates When the Gap Narrows to 0.5%p"

Choosing variable rates because they are cheaper than fixed rates for now
Burden increases over time
The difference between variable and fixed rates should decrease
More households will choose variable rates

On the 17th, a view of apartments from Lotte World Tower Seoul Sky in Songpa-gu, Seoul. The Korea Real Estate Board announced that the actual transaction price index for apartment sales in Seoul in March was 175.1, up 1.4 points from the previous month (173.7). This marks the first time in five months since October last year, when the Seoul apartment sales actual transaction price index recorded 180.0, that the index has turned upward again. Photo by Jinhyung Kang aymsdream@

[Asia Economy Reporter Sim Nayoung] Among households that prefer variable interest rates for mortgage loans, most responded that they would choose fixed interest rates if the gap between variable and fixed rates narrows to within 0.5 percentage points.

Even during periods of rising interest rates, financial consumers seeking mortgage loans from banks are choosing variable interest rates simply because the rates are currently somewhat lower than fixed rates. According to the Bank of Korea Economic Statistics System, as of April this year, the proportion of new fixed-rate loans was 19.2%, while variable-rate loans accounted for 80.8%. However, the downside of variable rates during periods of rising interest rates is that the interest payments increase over time.

According to the "2021 Housing Finance and Bogeumjari Loan Survey Results" announced by the Korea Housing Finance Corporation on the 31st of last month, among 166 general households that preferred variable mortgage interest rates, 87.5% said they would choose fixed rates if the gap with fixed rates narrowed to 0.5 percentage points. If the gap further narrows to 0.25 percentage points, 100% of respondents said they would choose fixed rates.

In fact, the interest burden between variable and fixed-rate loan types reversed within a few months. As of the end of September last year, KB Kookmin Bank's apartment mortgage loan rates were 3.03?4.65% per annum for variable rates and 3.22?4.72% per annum for fixed rates, with a difference of about 0.1?0.2 percentage points. Borrowers who took out variable-rate loans at that time now bear a higher interest burden than fixed-rate borrowers after half a year. This is because the newly linked COFIX rate for variable rates rose from 1.02% in September last year to 1.84% in May this year, an increase of 0.82 percentage points.

This survey was conducted on 5,000 households nationwide, targeting household heads or spouses aged 20 or older (general households), and 2,000 households using Bogeumjari Loans or Didimdol Loans (within the past year). Among general households, 38.3% were using housing finance products, and the higher the household income, the higher the usage rate of housing finance products. Among households using the Korea Housing Finance Corporation's Bogeumjari Loan, 9 out of 10 households (89.4%) expressed satisfaction with the corporation's mortgage loan products, and 86.8% said they would recommend them to others.

Among respondent households, about 7 out of 10 general households (65.3%) said, "A single home for actual residence is absolutely necessary." More than 1 out of 10 households (13.9%) said, "It is necessary to own a home for investment purposes other than actual residence."

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