The Bank of Korea raised its base rate from 2.50% to 2.75% on the 16th, marking the first increase in 3 years and 6 months, according to reports on the 19th from financial sources. The 25 basis point hike is expected to push up mortgage rates across the banking sector. Governor Shin Hyun-song stated that the inflation rate is projected to remain above the target level for a considerable period, necessitating a continued rate-hiking stance. This move comes as banks' funding costs have already risen, with the June COFIX (Cost of Funds Index) climbing 0.15 percentage points to 3.05%, the first time above 3% in 1 year and 5 months since January last year. The rate increase reflects the central bank's shift into a tightening cycle to control persistent inflationary pressures in the Korean economy.
5 Major Banks Report Mortgage Rates at 4.13–6.58% as of the 16th
As of the 16th, the five major banks—KB Kookmin, Shinhan, Hana, Woori, and NH Nonghyup—reported 6-month variable mortgage rates ranging from 4.13% to 6.58%, according to financial sector data released on the 19th. The increase reflects the previous day's COFIX adjustment, which serves as the benchmark for calculating mortgage rates across the banking industry. The 5-year fixed (hybrid) mortgage rates at the same five banks stood at 4.77% to 7.49%, up 0.84 to 1.26 percentage points from year-end levels of 3.93% to 6.23%. Analysts noted that if the current trend continues, the upper range of mortgage rates is highly likely to exceed 8% within the year.
June COFIX Index Climbs 0.15 Percentage Points to 3.05%
The June COFIX, calculated based on new loan originations, rose to 3.05%, an increase of 0.15 percentage points from the previous month. This marks the first time the index has surpassed 3% since January of last year. COFIX reflects the funding costs incurred by eight banks—including Kookmin, Shinhan, Hana, Woori, and Nonghyup—when raising capital through deposits, savings accounts, and bank bonds. When banks' funding costs increase, COFIX rises, and mortgage rates linked to the index follow suit. Market observers noted that the COFIX increase preemptively reflected the anticipated base rate hike, as the Bank of Korea had effectively signaled the move ahead of the monetary policy committee meeting on the 16th. Additionally, the 5-year treasury yield, which serves as a reference point for market rates including bank bonds, rose from approximately 3.2% at the start of the year to 4.0770% as of the 16th, an increase exceeding 0.8 percentage points.
Market Projects Three Additional Rate Hikes to 3.5%
Governor Shin Hyun-song indicated that further rate increases are necessary, stating that the inflation rate is expected to remain above the target level for a considerable period. At the monetary policy committee meeting on the 16th, the Bank of Korea raised the base rate by 25 basis points and left the door open for additional hikes. Market participants widely discuss a scenario in which the central bank implements three more 25 basis point increases—in October and twice in the first half of next year—bringing the base rate to 3.5%. The confirmation that the Korean economy has entered a formal rate-hiking cycle came directly from the central bank's official statements on the 16th.
Rate Hike Increases Annual Mortgage Interest Burden by KRW 1.8 Trillion
According to data submitted to National Assembly member Lee Jong-wook by the Bank of Korea, a 0.25 percentage point increase in the base rate results in an annual increase of KRW 1.8 trillion in interest burden for mortgage borrowers, based on first-quarter figures. The average interest burden per borrower rises from KRW 5.843 million to KRW 6.139 million, an increase of KRW 296,000. If the base rate rises by 0.50 percentage points from 2.50%, the additional annual interest burden reaches KRW 3.7 trillion; a 0.75 percentage point increase results in an additional KRW 5.5 trillion in annual interest costs. The rising base rate and corresponding mortgage rate increases are highly likely to lead to a heavier interest burden for borrowers.
FAQ
What did the Bank of Korea do on the 16th regarding the base rate?
The Bank of Korea raised the base rate from 2.50% to 2.75% on the 16th, marking a 25 basis point increase and the first rate hike in 3 years and 6 months. Governor Shin Hyun-song stated that the inflation rate is expected to remain above the target level for a considerable period, necessitating a continued rate-hiking stance.
How did the June COFIX index change and what does it mean for mortgage rates?
The June COFIX rose 0.15 percentage points to 3.05%, the first time above 3% in 1 year and 5 months since January last year. COFIX reflects the funding costs of eight major banks and serves as the benchmark for calculating mortgage rates. When COFIX increases, mortgage rates linked to the index rise accordingly, resulting in the five major banks reporting 6-month variable mortgage rates of 4.13% to 6.58% as of the 16th.
How much does a 0.25 percentage point base rate increase add to mortgage borrowers' annual interest burden?
According to Bank of Korea data submitted to the National Assembly, a 0.25 percentage point increase in the base rate results in an annual increase of KRW 1.8 trillion in total interest burden for mortgage borrowers, based on first-quarter figures. The average interest burden per borrower rises by KRW 296,000, from KRW 5.843 million to KRW 6.139 million.
