Low-interest 'floating-rate' loans attract borrowers... What are the best options when interest rates are rising?

Fixed-rate and variable-rate mortgage loans continue to evolve in response to rising interest rates. While it's generally more advantageous to lock in a fixed rate during periods of increasing interest rates, the limited availability of fixed-rate options leads many consumers to choose variable-rate loans. For example, Kookmin Bank offers a 6-month variable-rate mortgage ranging from 4.21% to 5.62% for the first 28 days, compared to 4.68% to 6.09% for a 5-year fixed-rate mortgage.

The difference between the two rates stands at 0.47 percentage points. Other banks follow a similar pattern, with KB Kookmin Bank setting its 6-month variable rate at 4.69% to 5.89% and the 5-year fixed rate at 5.35% to 6.55%. The gap between fixed and variable rates is influenced by benchmark interest rates. Kookmin Bank's head of customer service, Kim Gyeong, noted that the balance between fixed and variable rates had been roughly equal, but recent trends favor variable rates due to higher fixed rates.

This shift is attributed to the expectation of further interest rate hikes from the Bank of Korea. The trend is particularly notable in mortgage loans, where the fixed-rate advantage becomes more pronounced given the larger loan sizes and longer repayment periods.