New mortgage borrowers to face higher interest burden as Cofix gains in Sept.

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New mortgage borrowers in South Korea are expected to face an increased interest burden starting on Tuesday as the Cost of Funds Index (Cofix), the benchmark for short-term financing cost, hit 3.82 percent in September.

The figure marks a 0.16 percentage point increase from the previous month. It is also the first increase in three months and the largest gain this year, according to the Korea Federation of Banks on Monday.

The most significant increase this year occurred in June when the Cofix rate surged by 0.14 percentage point to 3.7 percent from 3.56 percent in May.

The interest rate also reached an annual high, matching the level seen in January at 3.82 percent. Higher interest rates imply an increase in financing costs at banks, which, in turn, results in a higher interest burden on mortgages and credit loans, which are the most common types of loans.

Commercial banks have been raising interest rates on mortgage loans every week since the end of September amid the continuing increase in the balance and volume of new mortgage loans motivated by expectations of rising house prices, regardless of the high rates.

Authorities and banks view this trend as a risk signal for household lending, leading to banks to raise interest rates as part of their efforts to hedge risks.

KB Kookmin Bank, Woori Bank, and Hana Bank have already increased their main mortgage rates by up to 0.2 percentage point since last week.

With the latest Cofix increase, the Cofix-linked rate for new mortgages at KB Kookmin Bank will rise to 4.6~6.0 percent from the previous 4.44~5.84 percent while at Woori Bank to 4.69~5.89 percent from 4.53~5.73 percent.

The new Cofix on the outstanding balance will change to a range of 4.41~5.81 percent from 4.39~5.79 percent at KB Kookmin Bank and to a range of 4.60~5.80 percent from 4.58~5.78 percent at Woori Bank.

On the other hand, lending rates at Hana Bank, which applies financial bond rates to calculate mortgage rates, will be reduced to a range of 5.226~6.226 percent from the previous 5.254~6.254 percent.

Cofix is calculated based on the information regarding the costs of funding provided by eight domestic commercial banks, reflecting changes in the interest rates of deposits, savings, bank bonds, and other financial products at those banks.

The Cofix on the monthly acquired new funds and Cofix on the outstanding balance are calculated based on the rates for savings and bond products, including time deposit, certificate of deposits and financial bonds.

The Cofix on the outstanding balance stood at 3.88 percent, marking a 0.02 percentage point increase from the previous month, while the new Cofix on the outstanding balance stood at 3.29 percent, up 0.02 percentage point.