US Fixed-Rate Mortgage Rates Break 5% for First Time
Although the US Federal Reserve froze its benchmark interest rate, some Fed officials argued for further hikes, and the 10-year US Treasury yield climbed past 5% per annum. High-rate pressure on the domestic financial sector and the interest burden on borrowers are set to continue. At its Federal Open Market Committee (FOMC) meeting on the 28th (local time), the Fed kept its target range for the benchmark rate at 3.75-4.00% per annum. However, of the 12 voting members, Fed Governor Lisa Cook and Cleveland Fed President Beth Hammack argued for a 0.25 percentage point hike.
Long-term rates had already reacted. Immediately after the FOMC announcement, the 10-year US Treasury yield rose to 5.047% per annum, up 0.05 percentage points from the previous trading day. Against this backdrop, domestic fixed-rate mortgage rates exceeded 5% per annum for the first time since the relevant statistics began being compiled.
The rise in market rates is translating into a heavier interest burden for borrowing households. According to the Bank of Korea's "Financial Institutions' Weighted Average Interest Rates for September 2026," the mortgage rate at deposit banks on new loans stood at 4.88% per annum, up 0.22 percentage points from the previous month. Mortgage rates have risen for five consecutive months since May. In particular, the fixed-rate mortgage rate reached 5.11% per annum, surpassing 5% for the first time since the statistics began in 2013, while the variable rate also rose 0.23 percentage points in one month to 4.76% per annum. The mortgage rate on outstanding balances, including existing loans, edged up 0.04 percentage points to 4.26% per annum.
Benchmark rates, such as bank bond yields, remain elevated. As of the 28th, AAA-rated bank bond yields stood at 3.816% per annum for six-month bonds and 4.225% per annum for five-year bonds, up 0.982 and 0.726 percentage points, respectively, from the end of last year. Some variable-rate mortgages use the six-month yield as their benchmark, while five-year cycle and hybrid products use the five-year yield. A banking industry official said, "If market rates remain at high levels, the burden will grow not only for new borrowers but also for existing borrowers whose rates are due to be reset," adding, "Borrowers are now scrutinizing the monthly principal and interest payments they can actually afford, rather than their maximum borrowing limits."
Card issuers and insurers are also shouldering funding pressures. As the burden of bank loan interest grows, card companies' funding and insurers' asset-liability management continue to face strain. Amid high funding costs, card companies are expanding mid-rate lending in line with inclusive finance principles. On the 28th, the yield on AA+ corporate bonds (three-year) stood at 4.383% per annum, lower than in September but up 1.013 percentage points from the end of last year.
That said, funding rates and loan rates are moving in opposite directions. Card companies' disclosed card loan funding rates rose to 4.55-4.99% per annum in September, up sharply from 3.42-3.68% per annum in December of last year. In contrast, the average card loan rate at the eight specialized card issuers fell 0.55 percentage points from the previous month to 13.55% per annum in September. This is seen as the effect of expanded mid-rate lending.
Next year, the call options on capital securities issued in 2022 will come due for early redemption one after another.
