From the Base Rate to Your Loan Interest
Step 1 — the Monetary Policy Board sets the base rate
The Bank of Korea’s Monetary Policy Board sets the base rate at scheduled meetings. On 2026-07-16 it raised the rate from 2.75% to 3%, a 0.25 percentage-point hike.
| Decision date | Base rate | Change |
|---|---|---|
| 2025-02-25 | 2.75% | -25bp |
| 2025-05-29 | 2.5% | -25bp |
| 2026-07-16 | 2.75% | +25bp |
| 2026-08-27 | 3% | +25bp |
The final entry above is 3% on 2026-08-27 — Second consecutive hike.
Step 2 — the lag until COFIX reflects it
A base rate change does not immediately move loan rates. Many variable-rate mortgages track COFIX (the Cost of Funds Index), which the Korea Federation of Banks compiles from eight banks’ funding costs and publishes on the 15th of each month, taking effect for new and renewing loans from the 16th of the following month. So even after a base rate hike, it can take nearly a month before it actually shows up in COFIX and reaches a loan rate.
Step 3 — passing through to your variable-rate loan
A variable-rate loan’s actual rate is typically COFIX + a bank-set margin. When COFIX rises, the applied rate rises with it even if the margin stays the same, reset at each loan’s reset cycle (often every 3 or 6 months). Fixed-rate loans, by contrast, keep the rate agreed at signing until maturity and are unaffected by this path. Some products are hybrid (mixed) loans — fixed for an initial period, then variable afterward — so the exact rate-setting method should always be checked in the loan agreement itself.
The math — what a 0.25pp hike costs on a 300M KRW loan
| State | Annual rate | Change in monthly interest |
|---|---|---|
| Before | 2.75% | — |
| After | 3% | +62,500 원 |
The formula is loan principal × rate change ÷ 12: 300,000,000 × 0.25pp ÷ 12 ≈ 62,500 KRW extra per month. This simple-interest estimate assumes an unchanged principal; in practice the outstanding balance falls each month under equal-payment or equal-principal repayment, so the actual increase can shrink slightly over time.
The path before the hike — why the direction flipped (informational)
Looking at the path before this hike: the rate held at 3.50% from 2023-01-13, then began falling from 2024-10-11 down to 2.50% by 2025-05-29. It then sat unchanged for over a year before this reversal on 2026-07-16. This is simply a chronological record of past decisions — it says nothing about which way the next one will go.
For information only — not a forecast or investment advice
This guide explains a base rate decision that has already happened and how it flows through — it does not predict future rate moves or recommend any loan or investment product. Decisions like refinancing or choosing between fixed and variable rates depend on your own repayment plan and risk tolerance, so consult a bank or financial professional before deciding.
Related guide
The legal cap on converting a jeonse deposit to monthly rent also tracks the base rate — see the jeonse conversion guide for the calculation. If you are deciding between equal-payment and equal-principal for a variable-rate loan, the repayment types guide can help. This is reference information as of 2026-07-17; see the Bank of Korea for the latest rate.