the state of mortgage rates
the top rate for a blended mortgage has surpassed 6% APR. it's the first time since December 2023 that the rate has surpassed 6% in nearly two years. Adjustable-rate mortgage rates have also risen to 5.8% APR, increasing the burden on borrowers.
the difference between hybrid and adjustable
there are two main types of mortgage products.
a hybrid is a five-year fixed-rate product backed by bank bonds. the interest rate is fixed for the first five years of the loan, after which it switches to a variable rate. it is this hybrid product that has seen interest rates rise this time.
the floating rate is based on the Copex. it stands for the cost of funds index, and the interest rate changes from time to time depending on market conditions.
recently, the 5-year bank bill rate increased by 0.6 percentage points, and the interest rate on the hybrid loan went up along with it.
why did rates rise?
the biggest reason for the increase in prime lending rates is the delay in lowering the benchmark interest rate. the strong dollar and unstable housing prices have made it difficult for the BOK to decide to cut rates. the U.S. Federal Reserve is also cautious about cutting interest rates, which could further delay a domestic rate cut.
the government's fiscal expansion policy also has an impact. more government bond issuance pushes up bond yields, which in turn pushes up market rates, leading to higher prime lending rates.
not to mention the tightening of real estate lending regulations, with commercial banks raising their lending thresholds to meet government-set loan totals. while the KOPIX has only increased by 0.01 percentage points since the end of August, the prime lending rate has increased by more than 0.2 percentage points, which means that banks are adjusting their own rate hikes.
the impact on borrowers
first, existing borrowers will see their interest burden increase, especially those who took out a blended mainstream loan between 2020 and 2021. At the time, they took out a loan at a low rate of around 2% per annum, but at the end of the five-year fixed rate term, they will be paying a higher rate of 5% to 6% per annum. that's a more than doubling of your interest rate.
second, lending limits are reduced. Currently, the banking DSR is 40%, which means that if you earn 50 million won a year, you can't spend more than 20 million won on loan repayments. As interest rates rise, the amount of interest you have to pay will increase, resulting in a higher DSR ratio for the same income, and eventually a lower borrowing limit.
frequently asked questions
when will the interest rate on my loan go down?
it depends on when the base rate is lowered. right now, we're not expecting a rate cut until the second half of 2025 or later.
is it better to have a hybrid or variable rate?
a variable rate is better if rates are expected to fall, and a hybrid fixed rate is better if rates are expected to rise. the outlook for interest rates is uncertain right now, so it's best to choose based on your repayment plan.
should I consider switching loans?
compare your current interest rate to the rate you'll get if you switch, as well as any early repayment fees. if the difference in interest rates isn't significant, the fees could be hurting you.
What is DSR regulation?
it's a regulation that limits the total amount of principal and interest a borrower owes to no more than a certain percentage of their annual income. for banks, it's 40%.
wrapping up
the 6% prime rate is the result of a combination of delayed interest rate cuts and tighter lending regulations. existing borrowers should prepare for an increased interest burden, and new borrowers should plan their financing to account for the shrinking limits caused by DSR regulations.
related articles: 2025 Real Estate Market Outlook, DSR Deregulation Possible, How to Calculate Mortgage Interest
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