Household loan rates rise for third straight month while corporate borrowing costs fall

Household loan rates at deposit-taking banks rose for a third consecutive month in July, driven by higher market interest rates. Mortgage rates hit their highest level in two years and eight months, while the share of fixed-rate mortgages fell to its lowest in more than 12 years.

According to the Bank of Korea's weighted average interest rate data for financial institutions, released Wednesday, the weighted average rate on new household loans at deposit-taking banks stood at 4.64 percent per annum in July, up 0.14 percentage point from the previous month. The rate has risen for three consecutive months since April, when it stood at 4.43 percent.

Among household loans, the mortgage rate rose 0.12 percentage point to 4.48 percent, while the general unsecured loan rate climbed 0.25 percentage point to 5.97 percent.

The mortgage rate was the highest since November 2023, when it also stood at 4.48 percent, marking a two-year-and-eight-month high. The general unsecured loan rate was the highest since December 2024, when it reached 6.15 percent — a one-year-and-seven-month high. The jeonse loan rate also rose 0.12 percentage point to 4.19 percent.

The share of fixed-rate mortgages fell 5.8 percentage points to 31.9 percent, declining for nine consecutive months since November last year, when it stood at 90.2 percent, and hitting its lowest since February 2014 — a 12-year-and-five-month low. "Fixed rates are higher than variable rates right now, so consumers tend to choose the lower rate immediately," said Kim Seong-jun, head of the Bank of Korea's financial statistics team.

The fixed mortgage rate rose 0.23 percentage point from the previous month to 4.76 percent, climbing for 10 consecutive months since October last year, when it stood at 3.97 percent. The variable mortgage rate rose 0.08 percentage point to 4.35 percent, sitting 0.41 percentage point below the fixed rate.

On the outlook for August rates, Kim said market rates had dipped early in the month before resuming an upward trend. "On average, long-term rates have fallen slightly while short-term rates have edged up, so it remains to be seen how things develop through the end of the month," he said.

Corporate loan rates fell 0.07 percentage point in July to 4.20 percent. Rates for large corporations edged up 0.01 percentage point to 4.18 percent, while rates for small and medium-sized enterprises fell 0.16 percentage point to 4.22 percent. The Bank of Korea attributed the decline to banks' expansion of productive financing and their own business judgments.

The overall bank lending rate, covering both household and corporate loans, fell 0.04 percentage point to 4.27 percent.

The savings deposit rate at banks — based on new transactions — rose 0.13 percentage point to 3.21 percent per annum, climbing for a fourth consecutive month since April, when it stood at 2.92 percent.

The rate on pure savings deposits such as time deposits rose 0.14 percentage point to 3.16 percent, while the rate on market-type financial products such as bank debentures and certificates of deposit rose 0.12 percentage point to 3.48 percent.

With overall bank lending rates falling and deposit rates rising, the spread between new lending rates and deposit rates — the loan-deposit rate gap — narrowed 0.17 percentage point to 1.06 percentage points.

The loan-deposit rate spread has narrowed for six consecutive months since February this year, when it stood at 1.43 percentage points.

The loan-deposit rate spread based on outstanding balances also narrowed 0.05 percentage point to 2.22 percentage points.

Among non-bank financial institutions, one-year time deposit rates rose at mutual savings banks (4.21 percent, up 0.47 percentage point), credit unions (3.56 percent, up 0.13 percentage point) and mutual finance cooperatives (3.25 percent, up 0.15 percentage point). Only saemaul credit cooperatives saw a decline, with their rate slipping 0.05 percentage point to 3.48 percent.

Lending rates rose at mutual savings banks (10.51 percent, up 1.03 percentage points), credit unions (5.16 percent, up 0.14 percentage point) and saemaul credit cooperatives (5.15 percent, up 0.48 percentage point), while mutual finance cooperatives saw their lending rate fall 0.15 percentage point to 4.61 percent.