August new-loan COFIX held steady at 3.18%

Outstanding and new-outstanding rates up 0.05 and 0.06 percentage points

Banks to apply updated rate to variable mortgages from Wednesday

An ATM at a bank branch in Seoul. [Yonhap]
An ATM at a bank branch in Seoul. [Yonhap]

The COFIX (Cost of Funds Index), the benchmark for variable-rate housing loans at South Korean banks, ended a four-month streak of increases, signaling that climbing variable mortgage rates may be in for a pause.

According to the Korea Federation of Banks on Tuesday, the August COFIX based on new loan amounts held steady at 3.18%, unchanged from the previous month.

The new-loan COFIX had risen from 2.81% in March to 2.89% in April, then continued climbing to 2.90% in May, 3.05% in June and 3.18% in July — four consecutive months of increases.

The outstanding-balance COFIX rose 0.05 percentage points, from 3.00% in July to 3.05%, while the new-outstanding-balance COFIX climbed 0.06 percentage points to 2.71%.

COFIX is the weighted average interest rate on funds raised by eight domestic banks — NongHyup, Shinhan, Woori, SC First, Hana, IBK, Kookmin and Citibank Korea. It reflects changes in the rates on deposit products, including savings accounts and bank bonds, that banks actually handle. When banks' funding costs rise, COFIX moves up as well, which can push variable-rate mortgage rates higher in turn.

The new-loan COFIX captures only funds raised in the given month, so it responds to market rate movements relatively quickly. The outstanding-balance and new-outstanding-balance measures, by contrast, incorporate existing funding and therefore reflect market shifts more gradually. As a general rule, fixed-rate loans — whose rates do not fluctuate — tend to be more advantageous than variable-rate mortgages during periods of rising interest rates.

Commercial banks plan to apply the newly published COFIX rate to their variable-rate mortgage products starting Wednesday.


hyuk@heraldcorp.com