“Who Would Borrow at 6%?”... Long-Term Fixed-Rate Mortgages Face ‘Interest Rate Barrier’ Despite Government Expansion

Government Pushes Again for 10-Year Fixed-Rate Mortgages

"Countermeasure Against Rate Hikes"

10-Year Fixed-Rate Products Already on the Market Offer 6% Range

Rising Interest Rates Lead to Waning Demand Even for 5-Year Fixed Loans
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The 10-year fixed-rate mortgage loans currently available in the market are being shunned by financial consumers. The share of these products handled by Shinhan Bank and Industrial Bank of Korea (IBK), which are offering them, has been found to be as low as 2% at most. Despite the advantage of being able to reduce interest burden during periods of rising interest rates, the high annual interest rate in the 6% range is acting as a barrier. Although the government has announced plans to expand the 10-year fixed-rate mortgage products as a countermeasure against rising interest rates, there are criticisms that it will be difficult to expect policy effectiveness unless incentives are introduced to enhance interest rate competitiveness.

According to the financial sector on September 7, the results of Shinhan Bank and Industrial Bank of Korea in handling 10-year fixed-rate mortgages are negligible compared to the total increase in mortgage loans in the banking sector.

Industrial Bank of Korea sold only 22.18 billion won of the product in the 21 months since its launch in December 2024. For comparison, the bank's total increase in mortgage loans from the launch until the end of June 2026 was 1.049 trillion won, underscoring just how minimal the scale of fixed-rate products is. Shinhan Bank, while not disclosing specific figures, also saw poor performance. The amount handled in the 13 months since the August 2024 product launch reached only 10.47 billion won, representing just 0.02% of the 4 trillion won increase in mortgage loans during the same period.

Long-term fixed-rate mortgage loans of 10 years or more offer the advantage of reducing interest rate volatility and increasing the predictability of household spending. Even during periods of rising interest rates, such as now, the burden of loan interest does not increase simply because market rates go up, which keeps the shock to borrowers limited. It also broadens the range of choices for consumers, who typically pick between 6-month floating rates or 5-year fixed terms.

Despite these advantages, the primary reason for consumer disinterest is the high interest rates. In reality, as of September 4, Shinhan Bank's lowest mortgage loan rate for floating products was 4.28% per year, while the 5-year fixed-rate stood at 4.8% and the 10-year fixed-rate at 5.2%. The upper bands were 5.68%, 6.21%, and 6.61%, respectively, illustrating a roughly 1 percentage point premium for the 10-year fixed-rate loan compared to the floating-rate option. For Industrial Bank of Korea, the minimum interest rate has already climbed to 6.425%, well into the mid-6% range.

With market rates rising faster than expected and tighter controls on total household lending, the overall level of mortgage rates has increased, further shrinking demand for long-term fixed-rate mortgage products, which now average around 6% annually.

In this context, the government's plan to expand 10-year fixed-rate mortgage options as an alternative during interest rate hikes has been met with skepticism in the market. A banking industry official stated, "The longer the period of fixed interest, the greater the risks associated with market rate increases or the possibility of refinancing if rates fall. This risk is reflected in higher pricing." The official added, "Bank debenture rates are also rising, which means current market conditions are not favorable for introducing long-term fixed-rate products."

In the end, to ensure that the policy objective of expanding fixed-rate products is not rendered meaningless, experts argue that incentives are needed to make the products more attractive by bringing the rates down to the average levels of floating-rate mortgages. A financial sector source said, "Even 5-year fixed-rate products are being ignored due to wide interest rate gaps. Unless the government dramatically lowers the rates for long-term fixed-rate mortgages, even if such products are introduced by private banks, there won’t be much incentive for consumers to choose them."

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