Will Borrowers Lock In Rates Above 6% for 10 Years? Long-Term Fixed-Rate Mortgages Struggle to Attract Interest

South Korea is preparing to launch mortgages with fixed interest rates lasting at least 10 years, but borrowers have shown little appetite for products priced above 6%.

A Financial Services Commission official told the Hankyoreh that the government is preparing to introduce the loans in the second half of the year. The measure forms part of a package announced last month for borrowers vulnerable to high interest rates, after the Bank of Korea raised its policy rate twice in succession in July and August.

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We are preparing to launch fixed-rate mortgages lasting 10 years or more in the second half of the year.

Long-term, purely fixed-rate mortgages of 10 years or more are virtually absent from the Korean market. Shinhan Bank and Industrial Bank of Korea offer 10-year reset products, but sales have been limited. Industrial Bank sold 22.108 billion won in such mortgages between their launch in December 2024 and August. Shinhan launched a product with a 200 billion won limit in August 2024, but had sold only 3.3 billion won by the end of that year and has not released later figures.

The main obstacle is the interest rate. As of Sept. 7, Shinhan’s 10-year reset mortgage carried rates of 5.19% to 6.60%, compared with 4.80% to 6.20% for its five-year reset product and 4.28% to 5.69% for its variable-rate mortgage. A commercial bank executive said borrowers might prefer a variable rate if they believe current rates could represent the peak.

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How many borrowers would choose to fix a rate in the 5% to 6% range for such a long period?

The protection offered by a long fixed rate becomes more attractive if the gap with variable rates narrows. A financial-sector official said borrowers could keep paying the lower fixed rate if rates rise, while those who later face falling rates could consider refinancing after weighing early repayment fees.

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A long-term fixed rate is a kind of insurance against rates rising further.

The policy also aims to reduce the broader shock from rising rates. Borrowers who took out five-year fixed or reset loans at annual rates of 2% to 3% during the COVID-19 period are now reaching rate-reset dates and facing sharply higher interest costs. Korea Institute of Finance senior researcher Kim Seok-ki described long-term fixed rates as a form of insurance against further increases, especially for homeowners with 10- to 20-year plans.

The government believes demand could emerge if a variable mortgage at 4.5% were matched by a purely fixed product at about 4.6% to 4.7%. It says it will consider incentives for banks so the loans become products consumers are willing to choose.

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If the variable rate is 4.5% and the pure fixed rate is around 4.6% to 4.7%, I believe some people would choose it.