Despite the notice of interest rate hike, more than 80% of new household loans issued last month were filled with floating rate loans. This is due to the fact that interest rates on floating rate products are low right now, and many borrowers who believe that the Bank of Korea will not be able to raise the base rate rapidly.
Fixed interest rate for main loan, higher than 0.4%P
Variable rate ratio to the highest in 7 years and 5 months
According to the Bank of Korea, the proportion of household loans with variable interest rates (based on new transactions) stood at 81.5% as of June. This is the highest level in 7 years and 5 months since January 2014 (85.5%). Compared to last year (63.8%), it increased by 17.7 percentage points, and compared to the previous month (78%), it also increased by 3.5 percentage points. It is unusual for the proportion of floating rate loans to increase when interest rates are expected to rise.
Rising interest rates on loans, increased floating rate loans. Graphic = Hyunseo Kim kim.hyeonseo12@joongang.co.kr
The BOK is hinting at the possibility of a key rate hike within the year. According to the BOK, if the loan interest rate rises by 1 percentage point, the total interest on household loans will increase by 11.8 trillion won.
However, many borrowers choose variable interest rates because of the current interest rate gap. As of the end of last month, the interest rate on the variable mortgage loan (main loan) linked to the COFIX (financing cost index) interest rate based on the new handling amount of the five major commercial banks is in the range of 2.39 to 4.07% per annum. On the other hand, the fixed rate main loan interest rate is 2.92~4.42%, which is higher at the top and bottom by 0.4 percentage points or more than the variable rate.
Cofix based on the new handling amount, which is the index rate for floating rate loans, fell to 0.89% in June last year, down to the 0% level, and recorded 0.92% this month as well. This is because the interest rates on deposits and savings accounts, which are included in the calculation of the COPIX, remain in the 1% range.
On the other hand, the yield of 5-year bank bonds (AAA), which is the index rate for fixed-rate loans, rose 0.36 percentage points from 1.536% at the end of January this year to 1.897% at the end of last month.
By Hyo-seong Ahn, staff reporter hyoza@joongang.co.kr
