The Cost of Funds Index (COFIX), which serves as a benchmark for determining the interest rates on variable-rate mortgage loans by banks, has rebounded for the first time in a year. As the government tightens lending limits through the October 15 real estate measures, the rise in COFIX is expected to lead to an increase in mortgage rates.
The Korea Federation of Banks announced on the 15th that the new COFIX, based on the volume of new loans last month, rose by 0.03 percentage points from the previous month to 2.52%. This marks the first increase in the COFIX since it stood at 3.4% in September of the previous year. Up until August of this year, the COFIX was consistently declining in line with the trend of lowering benchmark interest rates.
COFIX is an index calculated by taking the weighted average of the interest rates on funds raised by eight domestic banks (Kookmin, Shinhan, Hana, Woori, Nonghyup, IBK, SC First, and Citibank Korea). When banks raise interest rates on deposits and savings or issue bank bonds at high interest rates, the COFIX also increases.
The shift back to an increase in COFIX is attributed to the rise in bank bond interest rates, spurred by a retreat in expectations for further benchmark rate cuts last month. According to the Korea Financial Investment Association, the average interest rate for 5-year unsecured AAA-rated bank bonds rose from an annualized 2.851% on October 1 to 3.005% on October 30. This marks the first time in six months since March 28 that the average interest rate for 5-year bank bonds has surpassed 3%.
Banks using COFIX as a basis for variable-rate mortgages immediately raise the mortgage interest rates. For instance, Kookmin Bank plans to increase its variable-rate mortgage from an annualized 3.85-5.25% to 3.88-5.28% on the 16th, reflecting a 0.03 percentage point rise. Woori Bank will also adjust the interest rates for the same mortgage product in the same period from 3.79-4.99% to 3.82-5.02%.