Distinguishing Types of COFIX and Finding Internet Banks... Borrowers Growing Busier

Difference in Increase Speed Depending on COGIX Type
Check Bank Handling Availability and Early Repayment Fees as Well

[Asia Economy Reporter Minwoo Lee] As the COFIX (Cost of Funds Index), which serves as the benchmark for mortgage loans, rises sharply during the interest rate hike period, borrowers are facing increasing concerns. Experts advise finding a COFIX benchmark with a relatively smaller increase and paying attention to products offered by internet-only banks.

According to the Bankers Association on the 19th, the July COFIX (based on new contracts) announced on the 17th was 2.90%, up 0.52 percentage points (P) from the previous month. This is the first time since the index began in February 2013 that it has risen to the 2.9% range.

However, there are differences depending on the COFIX benchmark. COFIX is the weighted average interest rate of funds raised through deposits, savings, and financial bonds by eight domestic banks including KB Kookmin, Shinhan, Hana, Woori, NH Nonghyup, Industrial Bank of Korea, SC First, and Citi. The COFIX based on new contracts is calculated using the interest rates of newly acquired deposit products and financial bond issuances in the relevant month. Deposit and savings rates and market interest rates are reflected most quickly.

On the other hand, the COFIX based on outstanding balances includes all funds raised in the past, so market interest rates are reflected more slowly and the fluctuations are smaller. The COFIX based on new outstanding balances includes demand deposits and savings deposits with interest rates close to zero, so it usually shows the lowest figures. For July, the COFIX based on new contracts was 2.90%, while the new outstanding balance COFIX was 1.62%. The monthly increase was 0.52%P and 0.20%P respectively, showing more than double the difference.

The COFIX that commercial banks typically use for loans are the new contract-based and new outstanding balance-based COFIX. It is advised that when taking out a new loan, it is more advantageous to base the loan on the new outstanding balance COFIX rather than the sharply rising new contract COFIX.

Among the five major commercial banks?KB Kookmin, Shinhan, Hana, Woori, and NH Nonghyup?KB Kookmin, Shinhan, and Hana banks use the new outstanding balance COFIX as the benchmark for variable-rate mortgage loans. As of this date, KB Kookmin Bank’s variable-rate mortgage interest rate is 4.44?5.84% based on the new contract COFIX, but 3.82?5.22% when based on the new outstanding balance COFIX. Hana Bank also offers rates 0.43%P lower when using the new outstanding balance COFIX. However, Shinhan Bank’s interest rate range is the same at 4.30?5.35% for both benchmarks because a higher margin is applied when using the new outstanding balance COFIX.

However, the calculation becomes more complicated if the loan has already been taken out. If a borrower switches to a variable-rate product with a different COFIX type within three years from the loan execution date, an early repayment fee may be charged. However, switching from a variable-rate product to a hybrid (fixed-rate) product does not incur early repayment fees regardless of timing. A commercial bank official advised, “If the interest burden feels heavy right now, choosing a hybrid product may be advantageous, but if the global interest rate hike trend reverses, it could become disadvantageous. It is important to carefully consider personal circumstances before making a decision.”

Recently, internet-only banks that have been lowering loan interest rates can also be an option. KakaoBank expanded its mortgage loan target area nationwide the day before and lowered the margin by up to 0.5%P. The variable-rate mortgage interest rate based on new contracts is 4.048?6.361%. Although the upper limit is higher than the 4.30?6.11% of the five major commercial banks, the lower limit is also lower. If conditions are met, borrowers can obtain loans at more favorable rates.

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