Housing Mortgage Trend: Fixed Rates Still Dominant... Variable Rates Likely to Increase

Household Loan Growth Trend, Fixed Interest Rate Share 60~70%
Currently, Fixed Interest Rates Are Lower Than Variable Rates

View of apartments in Seobu Ichon-dong from the 63 Building observatory. Photo by Hyunmin Kim kimhyun81@

"Fixed interest rates are still cheaper than variable rates. Currently, about 60-70% of new mortgage loans are issued with fixed interest rates." (Mortgage loan officer at a commercial bank)

As the theory of a housing price bottom spreads and the real estate market picks up, household loans are surging again. Although financial authorities are expressing concerns over the increase in household loans, the fortunate aspect is that fixed-rate loans (fixed for 5 years then switching to variable) remain the mainstream. On the 18th, for KB Kookmin Bank, Shinhan Bank, and Hana Bank, the proportion of fixed-rate loans among new mortgage loans issued in July and August was about 60-70%. According to the Bank of Korea's Economic Statistics System, as of June, the share of fixed-rate loans among new mortgage loans from domestic banks was 73%, while variable-rate loans accounted for 27%.

This is because fixed rates are more competitive. As of the 16th, the variable interest rates at the five major banks (Kookmin, Shinhan, Hana, Woori, NongHyup) ranged from 4.08% to 6.06%, while fixed rates ranged from 3.83% to 5.92%. There are two reasons why fixed rates are lower than variable rates. First, at the beginning of this year, banks mainly reduced fixed interest rates. Financial authorities, concerned about the rapidly increasing interest burden on borrowers who took out mortgage loans with variable rates during the sharp rate hikes in the second half of last year, urged banks to increase the proportion of fixed-rate loans. In response, banks focused on lowering fixed rates.

Second, fixed rates adjust more quickly than variable rates. A bank official explained, "Fixed rates reflect daily changes in bank bond yields, while variable rates reflect the COFIX rate, which is updated monthly, so fixed rates move ahead of variable rates." When bank rates peaked in December last year and then declined between January and April this year, fixed rates fell faster than variable rates.

However, it is uncertain whether fixed rates will maintain their competitiveness over variable rates in the future. The 5-year bank bond yield, which underpins fixed rates, was 4.41% as of the 17th, up 0.45 percentage points from 3.96% in early May. The recent rise in U.S. Treasury yields has pushed domestic bond yields higher, and if this upward trend continues, fixed mortgage rates will inevitably rise as well.

On the other hand, the COFIX rate, which serves as the benchmark for variable rates, fell by 0.01 percentage points as of the 16th. The Bank of Korea's Monetary Policy Meeting scheduled for the 24th is widely expected to keep the base rate unchanged. If the relative levels of fixed and variable rates at commercial banks reverse, the situation could change at any time. Among the five major banks, only Shinhan Bank currently has variable rates (4.28% to 5.59%) lower than fixed rates (4.61% to 5.92%) as of the 17th.

A commercial bank official advised, "In times like now, when U.S. tightening policies and China's economic risks coexist and the direction of interest rates is uncertain, it is best to choose fixed rates initially. Then, when the prepayment penalty period ends, refinancing under better conditions can help minimize interest burdens."

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