The financial authorities plan to roll out long-term fixed-rate mortgage loans with no rate changes for up to 30 years in the second half of the year. The aim is to ease the burden during a rate-hike cycle, but borrowers are flocking to variable-rate mortgage loans that are even slightly cheaper.
According to the financial sector on the 10th, the financial authorities decided to push to launch long-term fixed-rate mortgage loans in the second half to improve the household liability structure. Demand for long-term fixed-rate products had not been high as the low-rate environment persisted for a while, but as rates have recently entered an upward cycle, they judged that the policy needs to move forward.
An official at the financial authorities said, "There was no demand for a while, but once the product is launched, financial consumers will have more choices."
Most fixed-rate loans handled by banks now are five-year cycle or hybrid products. The five-year cycle adjusts the rate every five years, and the hybrid fixes the rate for five years and then converts to a variable rate. The financial authorities, in consultation with banks, are said to be set to launch mortgage loans whose rates will not change for up to 30 years. The goal is to prevent the interest burden on vulnerable groups from surging sharply during a rate-hiking phase.
The problem is that even during a rate-hike cycle, borrowers are flocking to variable-rate mortgage loans. According to the Bank of Korea, the share of fixed rates among newly issued mortgage loans in June was 37.7%, down 3.9 percentage points from the previous month. The fixed-rate share, which reached 90.2% in November last year, fell for eight straight months to the lowest level since February 2014. In contrast, the variable-rate share expanded to 62.3%.
Variable-rate products are selling well because their rates are low. In June, the average rate on fixed-rate products was 4.53% a year, 0.26 percentage points higher than variable (4.27%). Long-term fixed-rate products of 30 years or more are expected to carry higher rates than short-term products. An official at a commercial bank said, "When offering long-term fixed rates, we have to set rates higher than existing products, taking into account the risk of future rate fluctuations."