Bank’s Rate Hikes Make 2% Mortgage Rates Disappear Overnight

Recent hikes in mortgage rates by banks have led to the disappearance of the once-available 2% rates

Recent hikes in mortgage rates by banks have led to the disappearance of the once-available 2% rates. As major banks continue to raise their lending rates to curb household debt, the rates for mortgage loans have surged, creating a contrast with the previous low-rate environment. This blog post explores the reasons behind these rate hikes and the impact they have on consumers.

Recently, banks have been raising their mortgage rates significantly, with the once-available 2% rates vanishing overnight. As of July 7, the fixed mortgage rates (including periodic and mixed types) from major banks such as KB Kookmin, Shinhan, Woori, Hana, and NH Nonghyup range from 3.108% to 5.63%. This is a marked increase from the previous day, where rates ranged from 2.94% to 5.71%, showing that the lower end of the rate spectrum has disappeared.

Specifically, Shinhan Bank’s 5-year fixed-rate mortgage had the lowest lower bound at 2.94% the previous day. However, starting from today, the bank increased the add-on rate by 0.3 percentage points, pushing the lower bound back to the 3% range. Similarly, Hana Bank’s rate, which was as low as 2.991% the day before, increased by about 0.1 percentage points due to a rise in the 5-year bank bond (AAA) rate, bringing the range to 3.108% to 3.508%.

This increase in mortgage rates reflects banks' efforts to curb household debt, which has been a growing concern. Despite a decline in market interest rates, the rate hikes by banks have led to an increase in mortgage costs for borrowers. As of today, the lower bound for mortgage rates (3.108%) has risen by 0.228 percentage points compared to July 8, while the bank bond rates that set the benchmark for mortgage rates decreased by 0.177 percentage points during the same period. Financial industry insiders point out that despite falling market rates, banks are artificially raising their rates, resulting in higher interest costs for borrowers.

Banks continue to raise mortgage rates in July as part of their efforts to manage household debt. KB Kookmin Bank has increased the rate for its non-face-to-face "KB Star Apartment Mortgage Loan (Variable & Mixed)" by 0.1 percentage points and plans to raise the rates for face-to-face products like "KB Housing Mortgage Loan (Variable & Mixed)" and "KB General Real Estate Mortgage Loan" by 0.3 percentage points on August 8. Woori Bank also raised its mortgage rates by up to 0.3 percentage points on August 2 and plans to increase rates for various mortgage products by up to 0.4 percentage points starting August 12.

Hana Bank and Nonghyup Bank are also monitoring future demand for mortgage loans and may consider further rate hikes. 

In addition to raising add-on rates, banks are exploring measures to manage household debt. Kookmin Bank has restricted mortgage refinancing and loans for multiple homeowners since late last month. Shinhan Bank plans to introduce a new 10-year financial bond-backed mortgage starting from August 9, aiming to improve loan quality by reducing interest rate risks for consumers.

The recent rate hikes by banks have led to the disappearance of the 2% mortgage rates, causing an increase in loan costs for borrowers. Despite efforts to control household debt, consumers face higher interest rates, highlighting the need for continued efforts to manage debt and mitigate risks. Banks must balance their rate adjustments with strategies that protect consumers and ensure sustainable financial practices.