Cofix, used to price mortgages, at decade high of 3.4%

The cost of fund index (Cofix) broke 3 percent in September for the first time in a decade. Cofix is used to calculate floating-rate mortgage rates. It is arrived at by averaging out the interest rates for deposit products at eight banks..

A notice about interest rates is up outside a bank in Suwon, Gyeonggi, on Tuesday. [NEWS1]

The cost of fund index (Cofix) broke 3 percent in September for the first time in a decade.

Cofix is used to calculate floating-rate mortgage rates. It is arrived at by averaging out the interest rates for deposit products at eight banks, including KB Kookmin and Shinhan Bank.

Mortgages are adjusted once the rate from the previous month is reported.

The rate rose 0.44 percentage points from a month earlier to 3.40 percent in September, according to the Korea Federation of Banks Monday.

It is the highest figure since the 3.4 percent in July 2012.

The rise in the Cofix has pushed up the interest rate for housing-related loans.

KB Kookmin Bank mortgages are being offered in a range of 5.09 percent to 6.49 percent starting on Tuesday from the previous range of 4.65 to 6.05 percent. The upper range of the rate at Woori Bank has been pushed up to 6.48 percent from 6.04 percent, while the top rate at NongHyup Bank has been pushed up to 6.04 percent from the previous 5.6 percent.

Cofix rose as a result of a quarter percentage point increase of the base rate by the Bank of Korea’s Monetary Policy Board in August. The base rate was pushed up to 2.5 percent.

The rise of Cofix outpaced the base rate increase because of intensified competition at banks to offer a higher rate for deposits and savings, according to a spokesperson for the Korea Federation of Banks.

The rate for a deposit product at Woori Bank with a one-year maturity reached 4.65 percent this month.

Cofix is projected to continue rising, as the Bank of Korea’s 50 basis point increase of the base rate on Oct. 12 has not yet been fully reflected in bank rates.

The central bank is projected to further raise the base interest rate as the U.S. Federal Reserve ups its benchmark rates.

“Participants judged that the committee needed to move to, and then maintain, a more restrictive policy stance in order to meet the committee’s legislative mandate to promote maximum employment and price stability,” notes from the Fed's Federal Open Markets Committee (FOMC) meeting in September read.

The next FOMC meeting is scheduled to begin Nov. 1.

On Oct. 15, Bank of Korea Gov. Rhee Chang-yong projected the current upward rate hike cycle will likely end at around 3.5 percent.

BY AHN HYO-SUNG, KIM YEON-JOO, JIN MIN-JI [jin.minji@joongang.co.kr]