Floating mortgage rates in South Korea are nearing 7%, driving up interest costs for borrowers. Owner-occupier buyers who chose floating-rate loans for their lower initial rates now face more complicated calculations.
Floating mortgage rates at the five largest banks — KB Kookmin, Shinhan, Hana, Woori and NH Nonghyup — ranged from 4.42% to 6.795% as of the 23rd, according to financial industry sources on the 25th. The lower end rose 0.07 percentage points and the upper end 0.03 percentage points from the end of September. A borrower with a 500 million won ($350,000) loan paying 7% would owe 35 million won a year in interest alone, excluding principal repayment, or about 2.92 million won a month. That is 10 million won more a year, or roughly 830,000 won more a month, than at 5%.
As the rate advantage of floating-rate loans narrows, some borrowers are reconsidering their options. One borrower facing a final payment next month asked on an online community forum whether to switch to a fixed-rate loan, noting that the gap between floating and fixed rates had narrowed to 0.3 percentage points from 0.8 percentage points.
The Cost of Funds Index (COFIX) for newly handled loans, the benchmark for floating rates, rose 0.25 percentage points from the previous month to 3.43% in September, the highest in two years and three months. "Because increases in COFIX are passed on to existing floating-rate loans in stages, depending on each loan's rate reset cycle, the interest burden on borrowers could grow for some time," an official in the financial sector said.