[1mm Finance Talk] One Month After the Base Rate Hike... Why Only Variable-Rate Mortgage Rates Rose

Impact of Base Rate Hike Differs Across Loan Products
Diverging Benchmark Rates: Variable Loans Up, Fixed Loans Down
Actual Rate Burden Felt by Borrowers Remains Limited Due to Internal Rate Adjustments

After the Bank of Korea raised its base interest rate to 2.75%, variable-rate mortgage loan rates increased over the following month, while fixed-rate mortgage loan rates actually decreased. This divergence is attributed to the differing movements of the benchmark rates—COFIX and bank bond rates. Experts point out that the actual felt impact of these interest rate changes among consumers was limited due to banks’ internal rate adjustments.

According to the financial sector on the 22nd, as of the 19th, the variable-rate mortgage loan rates at the five major banks (KB Kookmin, Shinhan, Hana, Woori, and NH Nonghyup Bank) ranged from 4.11% to 6.46%. On July 15, just before the base rate hike, rates stood at 4.02% to 6.37%, meaning both the upper and lower bounds have increased. By bank, KB Kookmin Bank and Woori Bank saw a significant increase of 0.36 percentage points and 0.3 percentage points, respectively. Shinhan Bank recorded a slight decrease of 0.01 percentage points.

In contrast, fixed-rate mortgage loan rates dropped despite the base rate hike, moving from a range of 4.74% to 7.41% down to 4.73% to 7.16%. By bank, Woori Bank’s rate decreased by 0.14 percentage points, and KB Kookmin Bank, Shinhan Bank, and Hana Bank all saw reductions of between 0.01 and 0.03 percentage points. NH Nonghyup Bank also lowered its upper-end rate from 7.41% to 7.16%, a drop of 0.29 percentage points.

This was largely due to the contrasting trends in their respective benchmark rates: COFIX for variable-rate mortgages and bank bonds for fixed-rate mortgages. The benchmark for variable-rate mortgages, COFIX, climbed from 2.9% on July 15 to 3.05%, and again to 3.18% on August 18, rising a total of 0.28 percentage points during this period. On the other hand, the five-year bank bond yield, which serves as the benchmark for fixed-rate mortgages, rose from around 4.4% before the base rate hike to 4.5% after, but dropped back down to the 4.2% to 4.3% range earlier this month. Compared to a month ago, this marks a decrease of about 0.04 to 0.09 percentage points.

A financial sector official commented, “Typically, when the base interest rate increases, market rates also tend to rise, but this hike was already anticipated and thus largely reflected in the market in advance. Although the base rate went up, bank bond rates were actually corrected downward due to perceptions of a market peak.” The gap between the base interest rate and bank bond yields currently sits at around 1.5 percentage points, leading some in the market to believe that the market had already priced in the equivalent of four consecutive base rate hikes.

In contrast, COFIX has been rising for four consecutive months since May. The extended period of high bank bond rates coupled with the recent base rate hike led banks to simultaneously raise their savings deposit rates.

However, as banks make internal adjustments when calculating lending rates, borrowers have felt the impact of rate increases more strongly, while the felt impact of rate decreases has been limited. In KB Kookmin Bank’s case, for example, at the end of last month, the bank raised the additional spread on variable-rate mortgage loans by 0.053 to 0.06 percentage points as part of its household loan volume management. This is likely a key reason why borrowers might have perceived loan rates as heavier or more burdensome. Another financial sector official stated, “Even outside the context of volume management, final lending rates are constantly adjusted to reflect funding costs and risk, and the differences in how each bank calculates its benchmark rates may have also played a role.”

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