As interest rates rise, borrowers increasingly choose variable-rate loans over fixed-rate Bogeumjari loans

South Korean borrowers are turning increasingly toward variable-rate mortgages as fixed rates climb. New sales of the Korea Housing Finance Corporation’s Bogeumjari loan fell to 1.6127 trillion won in July, down 25.4% from 2.1623 trillion won in June.

July’s figure marked the product’s lowest monthly sales since June last year. Bogeumjari is a long-term, fixed-rate, amortizing mortgage for households buying homes valued at up to 600 million won, provided combined spousal annual income does not exceed 70 million won. It offers terms of up to 50 years.

The product’s monthly sales reached 2.5675 trillion won in February, the highest since November 2023, before declining again from March. Its outstanding balance stood at 115.8431 trillion won at the end of July.

The Korea Housing Finance Corporation raised Bogeumjari rates five times this year: by 0.25 percentage points in January, 0.15 points in February, 0.30 points in April, 0.25 points in May and 0.30 points in July. The e-Bogeumjari product’s rates consequently reached 4.90% for a 10-year term and 5.20% for a 50-year term.

Those rates exceeded the lower end of variable mortgage rates at South Korea’s five largest banks, which ranged from 4.38% to 6.46% on August 28. The lowest applicable rate for the online u-Bogeumjari loan reached 5% in July, its highest since July 2012. The corporation said higher rates could reduce demand even when the product remained competitive, because borrowers faced greater repayment burdens.

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Even if Bogeumjari rates are competitive, demand itself can decline when the absolute level of interest rates is high because the repayment burden increases.