Stocks are plunging while mortgage interest costs are rising. With both sides of household balance sheets shaking at once, financial pressure on Korean families is mounting.
The Cost of Funds Index (COFIX) for newly handled loans rose 0.25 percentage points from the previous month to 3.43% in September, according to the Korea Federation of Banks on the 16th. That is the steepest monthly increase in three years and 10 months, since November 2022, when the index climbed 0.36 percentage points.
KB Kookmin Bank raised its six-month variable-rate mortgage range to 4.64%–6.04% from 4.39%–5.79%, effective the 16th. Woori Bank lifted its range to 5.00%–6.20% from 4.75%–5.95%. By simple calculation, a borrower with a 249 million won ($173,000) variable-rate loan faces roughly 600,000 won more in annual interest, or about 50,000 won a month.
Behind the increase are higher deposit rates at banks. Corporate funds flowed out in September as companies paid corporate taxes, prompting banks to raise deposit rates one after another to attract individual savings. Those increases have continued into October.
COFIX for newly handled loans reflects only newly raised funds, so it shows shifts in market rates quickly. The balance-based COFIX for the same month rose just 0.10 percentage points to 3.15%. The three-month short-term COFIX also climbed to 3.43% as of the 14th of this month, indicating that banks' funding costs are not coming down.
The interest burden spreads with a lag. New loans reflect the higher rates starting the business day after COFIX is published, while existing variable-rate borrowers see the change at their next rate-reset date. Financial industry officials say that as these increases feed through in sequence, the average variable-rate mortgage is likely to top 5% by year-end.
Second-Half Losses Approach 30%; Too Early to Call a Bottom
The stock market has swung more sharply. The KOSPI fell for seven straight sessions from the 6th through the 15th, losing 20.7%. On the 15th alone it tumbled 7.57% to close at 5,554.22, and circuit breakers were triggered in succession on both the KOSPI and the KOSDAQ.
More than 410 trillion won in market value evaporated in a single day, and foreign investors sold a net 4.8196 trillion won that day. U.S. consumer prices rose 3.7% from a year earlier in September, adding to interest rate concerns, and worries over the profitability of AI investment compounded the pressure.
The market rebounded the next day. The KOSPI closed at 5,668.05 on the 16th, up 113.83 points, or 2.05%, snapping the seven-session losing streak. It topped the 5,800 level during the session but gave back much of the gain. The KOSDAQ ended 4.46% higher at 794.78, and a buy-side sidecar was triggered in the afternoon.
Analysts say the rebound does not necessarily confirm a bottom. Securities analysts cite three conditions for a sustained recovery: easing uncertainty over U.S. inflation and interest rates, a let-up in foreign selling, and stabilization in large-cap chip stocks such as Samsung Electronics (005930.KS) and SK hynix (000660.KS).
Assessments that the selloff was overdone are fueling hopes of a rebound. IBK Investment & Securities said there have been only 11 instances of seven consecutive declining sessions since 2010, and that the index rose an average 3.7% in the 20 sessions after such streaks ended. Because the current drop of 21% is far larger than the roughly 5% seen in past cases, the brokerage said the odds of a rebound over the coming month are higher.
Yuanta Securities Korea, by contrast, said cheap valuations alone are unlikely to improve foreign investor flows. Analysts advise that even if a rebound materializes, investors should not treat it as a trend reversal and should buy in installments while avoiding leveraged bets.
Averaging down — buying more shares as prices fall to lower the average purchase price — requires spare cash. As loan interest rises, the money households have available shrinks by that much. Financial industry officials urge borrowers approaching a rate-reset date to check in advance how much their interest payments will increase.