Rapidly Rising Mortgage Rates... Surpassing 7%, Heading Toward 8%?

Fixed-Rate Mortgage Holds in the 7.5% Range
Variable Rates Exceed 6% Including Online-Only Loans
Kookmin Bank Raises Household Loan Rates by 0.06–0.53 Percentage Points

The upper end of fixed-rate mortgage rates at the five major commercial banks (KB Kookmin, Shinhan, Hana, Woori, and NH Nonghyup Bank) recently touched 7.6% before edging down, now holding steady in the 7.5% range. There is a growing chance that rates will surpass 8%, as the KB Kookmin Bank's across-the-board hike in household lending rates is spreading to other banks, and if the Bank of Korea implements back-to-back benchmark rate hikes next month.

According to the financial industry on July 31, this week's fixed-rate mortgage (based on AAA-rated 5-year bank bonds) ranged from 4.81% to 7.59% on July 29 and from 4.75% to 7.56% on July 30. Although the upper range has declined slightly from 4.84% to 7.60% on July 28, it still stands 0.04 percentage points higher compared to 7.52% a week ago, on July 22. Compared to the end of last year, when the fixed mortgage rate was between 3.93% and 6.23%, the lower end has increased by 0.82 percentage points and the upper end by 1.33 percentage points.

The reason for the rise in fixed mortgage rates is that the yield on AAA-rated 5-year bank bonds, which serves as the benchmark for fixed rates, climbed from 3.409% at the end of last year to 4.337% as of July 29, an increase of 0.928 percentage points. The upper end of the fixed mortgage rate, which hovered around the mid-6% range through early this year, exceeded 7% on March 27 after the yield on bank bonds spiked by approximately 0.5 percentage points in just a month since the end of February, due to the impact of the Middle East conflict. This is the first time in three years and five months that the fixed-rate mortgage upper bound has exceeded 7%. On June 10, the rate surpassed 7.5% for the first time in three years and seven months. Since the amendment to the Banking Act took effect this month, banks can no longer reflect additional spreads in new or renewed loan rates, resulting in the fixed mortgage rate dropping to the 7.3%-7.4% range. However, it rose to the 7.5% level again following the Bank of Korea's 0.25 percentage point base rate hike on July 16.

As for variable-rate mortgages (6-month), the four banks (excluding Nonghyup Bank, which has suspended in-person loan services) offered rates ranging from 4.09% to 5.57%. Including NH Nonghyup Bank's non-face-to-face variable-rate mortgage, the upper limit rises to 6.38%. Variable mortgage rates have also increased because the Cost of Funds Index (COFIX), the benchmark for such loans, has been rising for three consecutive months, surpassing 3.05% for the first time in one year and five months.

The banking sector sees further upward pressure for variable-rate mortgages, given that key deposit and bank bond rates—the main components of COFIX—are also rising. Unsecured loan rates surpassed 6% on June 10 for the first time in two years since June 2024, and stood at 6.23% as of the latest available data.

Banks anticipate that the increase in lending rates will continue. Among the five major banks, KB Kookmin Bank, whose household loan rates are near the median, has raised mortgage rates by 0.06 to 0.53 percentage points, and raised both jeonse loan and unsecured loan rates by 0.15 to 0.49 percentage points, effective today, in order to strengthen household loan management. If KB Kookmin Bank's upward rate policy spreads to other commercial banks, the upper end of the fixed-rate mortgage could exceed 8%. Although other banks are taking a wait-and-see approach regarding their household loan portfolios, the annual total household loan growth target (4.4463 trillion won) for the five major banks soared from a 80% utilization rate on July 9 to 108% by July 15, and has not dropped below 100% since, indicating a need for further measures.

In addition, the possibility that the Bank of Korea may raise the benchmark rate by another 0.25 percentage points at the Monetary Policy Board meeting on August 27 is drawing attention. This is because core inflation remained relatively high at 2.5% last month, above the target of 2.0%, and real gross domestic income (GDI), which reflects the real purchasing power of household income in the second quarter of this year, rose 15.6% compared to the same period last year, adding to demand-side inflationary pressures. An official at one of the major banks commented, "KB Kookmin Bank has historically had a high demand for household loans since its days as Housing & Commercial Bank, and the recent surge in household lending seems to have prompted proactive action. Other major banks will make decisions taking into account whether they can improve their total household loan utilization rate and whether the Bank of Korea raises the policy rate."

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