Year-End Interest Burden Increases... COFIX Hits Highest Level in 11 Months

4.0% New Loan Amount Last Month... 0.03% Increase from Previous Month
Variable Interest Rate on Mortgage Loans to Rise from the 18th

The Cost of Funds Index (COFIX), which serves as the benchmark for variable interest rates on mortgage loans, has risen to the 4% range for the first time in 11 months, marking the highest level this year. Borrowers with variable-rate loans are expected to face increased interest burdens by the end of the year.

According to the Korea Federation of Banks on the 17th, the COFIX based on new loan amounts in November was recorded at 4.0%, up 0.03 percentage points from the previous month (3.97%). After a slight decline in July (3.69%) and August (3.66%) following June (3.7%), COFIX has risen for three consecutive months in September (3.82%), October (3.97%), and November. This is the first time in 11 months since December last year (4.29%) that the COFIX based on new loan amounts has entered the 4% range.

COFIX is the weighted average interest rate of funds raised by eight domestic banks (NH Nonghyup, Shinhan, Woori, SC Jeil, Hana, Industrial Bank of Korea, KB Kookmin, and Citi), reflecting changes in interest rates of deposit products such as actual deposits, savings, and bank bonds handled by these banks. A decline in COFIX means these banks have raised funds at a lower cost.

The upward trend in COFIX is due to the continued increase in interest rates on regular deposits at commercial banks until recently. Commercial banks, which attracted funds with high-interest deposit products offering 4-5% annual rates last year, now face a growing need to secure funds again as these products approach maturity. According to the Bank of Korea Economic Statistics System, the interest rate on bank regular deposits (1-year maturity) steadily rose from 3.51% in April to 4.11% in October.

Bank bond issuance rates have also increased. The AAA-rated 6-month bank bond rate, which affects variable-rate products, rose from the high 3% range in September to the 4% range in October. This increase is due to banks competitively issuing more bank bonds to raise funds, pushing rates higher.

With the rise in COFIX, variable interest rates on mortgage loans at commercial banks are expected to be adjusted upward starting from the 18th. For example, KB Kookmin Bank’s variable mortgage loan rates based on new loan COFIX will increase from 4.72-6.12% to 4.75-6.15%, while Woori Bank’s rates will rise from 5.00-6.20% to 5.03-6.23%.

Meanwhile, the COFIX based on outstanding loan balances last month was 3.89%, down 0.01 percentage points from the previous month (3.9%), and the newly introduced COFIX based on new outstanding balances since June 2019 rose 0.02 percentage points to 3.35% from 3.33% the previous month.

On the 21st, a notice about mortgage loan interest rates is posted at a commercial bank in Seoul. Photo by Jinhyung Kang aymsdream@

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