Mortgage Loan Interest Rates Back Up to 6%... Rising Again

3% Loan Interest Rates Disappear
Bank Bond Rates Rise, Leading to Higher Loan Interest Rates
Preference for Fixed Rates Lower Than Variable Rates

A customer is receiving consultation at the bank loan consultation desk. Photo by Jinhyung Kang aymsdream@

Interest rates, which seemed to be falling in the first quarter of this year, are rising again. The variable interest rates on mortgage loans at commercial banks have exceeded 6%. The variable rates at the five major banks (KB Kookmin, Shinhan, Hana, Woori, NongHyup) ranged from 4.21% to 6.12% as of the 28th of last month. Fixed rates were recorded between 4.00% and 5.81%.

Until May, mortgage loan interest rates in the 3% range were noticeable, but the atmosphere has changed. According to the Korea Federation of Banks, the proportion of new mortgage loans with interest rates in the 3% range in May was 5.9% at NH NongHyup and 3.5% at Hana Bank.

The recent rise in interest rates is due to bank bond yields. One of the main methods banks use to raise loan funds is issuing bank bonds. As the issuance volume of these bank bonds increased, their yields rose, causing loan interest rates to climb accordingly. According to the Korea Financial Investment Association, the 6-month AAA-rated bank bond yield rose from 3.57% on May 2 to 3.80% on June 28. During the same period, the 1-year yield increased from 3.64% to 3.86%, and the 5-year yield from 3.96% to 4.17%.

A representative from a commercial bank explained, "Starting in July, with the tightening of the Liquidity Coverage Ratio (LCR) regulations, banks are required to increase their cash asset holdings beyond current levels, so each bank is issuing bank bonds up to the maximum limit." They added, "The Federal Open Market Committee (FOMC) signaling interest rate hikes also influenced the recent rise in rates."

However, since fixed interest rates remain lower than variable rates, there is a noticeable shift toward fixed-rate loans. According to the Bank of Korea, as of May, 77% of new mortgage loans were taken out with fixed rates, while 23% chose variable rates. This is because financial authorities have urged banks to maintain greater competitiveness in fixed rates compared to variable rates to minimize the impact of interest rate fluctuations.

Despite the upward trend in interest rates, household loans have bottomed out and are increasing. In June alone, household loans at the five major banks increased by more than 600 billion KRW. This marked the second consecutive month of growth following May. As of June 22, the outstanding household loans at the five major banks totaled 678.2162 trillion KRW, up 60.4 billion KRW from the end of May (677.6122 trillion KRW).

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