The COFIX (Cost of Funds Index), which serves as the benchmark for variable-rate mortgage loans, has seen its largest increase in nearly three years and ten months. As a result, the upper limit of mortgage rates at KB Kookmin Bank and Woori Bank has surpassed 6%. With rising home prices and increasing loan rates, the financial burden on prospective homebuyers and existing variable-rate borrowers is expected to grow.
According to the Korea Federation of Banks on October 15, the COFIX for new loans in September rose to 3.43%, an increase of 0.25 percentage points from the previous month, marking the largest rise in nearly four years. The balance-based COFIX stands at 3.15%, while the new balance-based COFIX is at 2.79%, reflecting increases of 0.10 and 0.08 percentage points, respectively.
The rise in COFIX is immediately reflected in new mortgage rates. Starting October 16, KB Kookmin Bank will raise its COFIX-linked mortgage rates from 4.39-5.79% to 4.64-6.04%. Woori Bank will also increase its rates from 4.75-5.95% to 5.00-6.20%. Both banks will see their upper limits exceed 6%.
Borrowers who have signed a home purchase contract but have not yet executed their final loan may be subject to the new rates depending on when the product and rate are confirmed. Existing variable-rate borrowers will also see the COFIX changes reflected when their agreed-upon rate reassessment period, typically six months, comes due.
However, the extent and timing of rate changes can vary by product. The new loan COFIX reflects the cost of funds newly raised by banks in that month and is not limited to new borrowers; existing borrowers using products linked to this index will also be affected at the time of reassessment.
This latest increase in COFIX is notable, with the new loan basis rising by 0.25 percentage points, significantly more than the 0.08 percentage point increase in the new balance basis. Even among variable-rate mortgages, the actual rate change can differ based on which COFIX is linked and the COFIX applied during the last reassessment.
As the growth of mortgage loans in the banking sector has already slowed, there are concerns that rising rates may further burden homebuyers. According to the Bank of Korea and financial authorities, the increase in mortgage loans in September was 2.9 trillion won, down from 4.1 trillion won the previous month. Authorities attribute this decline to a slowdown in jeonse transactions and a decrease in available housing units.
Banking officials also view rising home prices as a factor limiting new loan demand. As the burden of self-funding for home purchases increases, some buyers are delaying their purchases. With rising loan rates, the financial strain on genuine buyers may intensify.
Even if market interest rates decline in the future, borrowers' interest burdens will not immediately decrease. COFIX reflects the actual funding costs for banks and is applied according to the agreed-upon cycle for existing loans, meaning there may be a lag before changes in market rates are reflected in actual loan rates.
* This article has been translated by AI.
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