Mortgage Rates Approach 7%: Should You Lock In Now?

Mortgage rates are nearing 7% annually, raising concerns for homebuyers preparing to purchase their own homes. The narrowing gap between variable and fixed mortgage rates, which had previously attracted attention for being relatively low, is increasing the appeal of fixed-rate options. Analysts suggest that locking in a fixed rate may be advantageous, especially considering the potential for further rate hikes.

As of October 29, the five major banks in South Korea (KB Kookmin, Shinhan, Hana, Woori, and NH Nonghyup) reported that the five-year fixed mortgage rates range from 4.57% to 6.51%, while six-month variable rates range from 4.38% to 6.38%. The difference between the upper limits of variable and fixed rates has decreased to 0.13 percentage points, down from 0.17 percentage points on October 27.

The shrinking rate gap enhances the attractiveness of fixed-rate mortgages. With the Bank of Korea keeping the door open for additional interest rate hikes this year, borrowers with variable rates may face increased interest burdens if rates rise further. Variable rates are typically adjusted every six months or annually, while fixed rates remain stable for the agreed-upon period, reducing the impact of rising rates.

Once borrowers decide on the type of rate, they should meticulously compare loan conditions across banks. Recently, internet-only banks have emerged as viable options, allowing borrowers to complete the entire loan process online without visiting a branch.

Notably, Toss Bank has entered the mortgage market five years after its launch, intensifying competition among internet banks. As of October 27, Toss Bank offered six-month variable rates between 4.44% and 8.95%, and five-year fixed rates between 4.65% and 9.19%. In comparison, Kakao Bank's mortgage rates for six-month variable loans range from 4.752% to 6.552%, while five-year fixed rates range from 4.973% to 6.802%. K Bank's rates are between 5.21% and 9.24% for variable loans and between 4.64% and 8.60% for fixed loans.

However, a lower minimum rate does not guarantee favorable terms for all borrowers. Actual rates may vary based on factors such as salary transfers, credit card usage, and automatic payment registrations. Therefore, it is advisable for borrowers to compare products from multiple financial institutions rather than assuming their primary bank offers the best rates.