"I get paid to cover interest... A 2%p increase in just half a year is standard"

Mortgage Loan Interest Rates Jump 2 Percentage Points at Once
August COFIX Rises 0.06% to 2.96%
Highest in 9 Years and 7 Months

As the U.S. central bank, the Federal Reserve (Fed), hinted at additional interest rate hikes, attention is increasing on whether the Bank of Korea's Monetary Policy Committee will raise rates at its meeting scheduled for the 25th. The photo shows a loan counter at a commercial bank in downtown Seoul on the 19th. Photo by Kim Hyun-min kimhyun81@

"I feel like I’m getting paid just to pay interest. I cut back on buying camping gear one by one and reduced my credit card bills, but my salary just brushes past my bank account and heads straight to the bank." Cha Eun-seong (45) moved into an apartment in Guro, Seoul (exclusive area 84.96㎡) this March and took out a loan of 460 million KRW. At that time, the variable interest rate was 3.63%. After paying taxes and buying new household items, he also took out a 100 million KRW personal loan with an interest rate of 4.09%. However, just six months later, this month, the bank notified him that the new interest rates were 4.89% for the mortgage and 5.80% for the personal loan. Cha said, "The monthly interest rose from 1.4 million KRW to 1.95 million KRW," adding, "Even though both of us work, a significant portion of one person's salary goes to paying interest."

Interest rates are rising relentlessly. As of August, the COFIX (Cost of Funds Index), which is the benchmark for variable mortgage rates, was recorded at 2.96%. This is 0.06 percentage points higher than the previous month and the highest level in 9 years and 7 months. Banks add a margin to the COFIX to inform customers of the final interest rate.

Mortgage Rates Expected to Exceed 7% by Year-End

When COFIX rises, variable mortgage rates also increase accordingly. COFIX has been rising continuously since June last year (0.92%) and has now reached 2.96%. During this period, banks’ variable mortgage rates have jumped from 2-4% to 4-6%. Even this increase was somewhat controlled as banks recently lowered their margins under pressure to reduce loan rates.

However, with the U.S. Federal Open Market Committee (FOMC) expected to raise the base rate on the 21st and the Bank of Korea likely to follow suit in October, market interest rates are expected to rise further in the fourth quarter of this year. This is why the financial sector predicts that mortgage rates could approach 7% by the end of the year.

On the 15th, when the preferential safe conversion loan that changes variable-rate mortgage loans to long-term, fixed rates starting at an annual 3.7% was launched, counselors at the Safe Conversion Loan Call Center in Mapo-gu, Seoul, were answering inquiry calls. Photo by Mun Honam munonam@

Safe Conversion Loans Are Out of Reach in Seoul

As interest burdens for highly leveraged borrowers balloon like a snowball, voices calling for expanding the scope of safe conversion loans, which started on the 15th, are growing. Lee Gi-seon (51), who borrowed 400 million KRW at 2.63% in September 2020 for an apartment in Dobong-gu, Seoul, saw the interest rate rise to 4.78%, increasing his monthly interest by 710,000 KRW (from 820,000 KRW to 1,590,000 KRW).

Lee said, "I hurried to the bank yesterday thinking the mortgage rate would be fixed at around 3%, but they told me it only applies to homes priced under 400 million KRW. Where in Seoul is there such an apartment?" He added, "I heard it used to apply up to 900 million KRW, but when rates rise like this, shouldn’t the government help homeowners who barely managed to buy their first home with loans?"

The Korea Housing Finance Corporation and six major banks (Kookmin, Shinhan, Woori, Hana, Nonghyup, and Industrial Bank) are currently accepting applications for the safe conversion loan. This product refinances variable-rate mortgages borrowed from primary and secondary financial institutions into long-term, fixed-rate policy mortgages at around 3% through the Housing Finance Corporation to reduce mortgage interest burdens. However, the conditions have become much stricter than before. The home price must be 400 million KRW or less, combined household income must be 70 million KRW or less, and the loan limit must be 250 million KRW or less to apply.

This is the third time the safe conversion loan has been offered, following 2015 and 2019. The home price limit was 900 million KRW for the first and second rounds. The reduction to 400 million KRW in this third round considered that during the second round, many applicants applied, but the highest home price for loans actually supported was only 270 million KRW. The government plans to consider raising the home price limit back to 900 million KRW when supplying an additional 20 trillion KRW next year.

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