The difference is whether the contracted rate stays the same until maturity or is linked to market rates at each reset period. No conclusion is drawn about which is better.
This post covers Korean loan rules and definitions, and the linked official sources are in Korean.
1. The original definition in the 700 Terms
This is the original text of the "fixed interest rate" entry in the Bank of Korea's 700 Economic and Financial Terms (2020 PDF). (S1)
| Item | 700 Terms original text | Bank of Korea column (2014-07-14) |
|---|---|---|
| Fixed rate | "A rate at which the initially contracted rate is maintained unchanged until maturity" | "A loan whose interest rate level is kept constant during the contract period" (S2) |
| Variable rate | "A rate at which the contracted rate changes by reflecting market rates at set intervals" | "The loan rate changes with a reset period of 6 months or 1 year in line with changes in the base rate or a related index" (S2) |
The 700 Terms example (same entry): with a 1-year maturity and a fixed contracted rate of 4%, the contracted rate stays at 4% even if market rates change. With a 1-year maturity, a 3-month reset period and a contracted rate of the CD rate + 0.5% (or 50bp), the rate is linked to the CD rate every 3 months. (S1)
The Bank of Korea column says household loan rates "are determined by adding to a reference rate a spread that reflects operating costs, the individual's creditworthiness, an appropriate margin and so on." (S2)
2. What is different
| Item | Fixed | Variable | Source |
|---|---|---|---|
| Contracted rate | Constant during the contract period | 6-month or 1-year reset period (column) | [S2] |
| Interest rate risk | Borne by the bank | Borne by the borrower | [S2] |
| Initial rate | May be somewhat higher than variable at the time | May be relatively lower | [S2] |
| Classification in Financial Products at a Glance | (1) Rate unchanged over the contract period (2) Reset period of 5 years or more (3) Hybrid with a fixed period of 3 years or more | All others | [S3] |
The last paragraph of the Bank of Korea column: "It is almost impossible to say across the board which is more advantageous, a fixed-rate loan or a variable-rate loan." (S2)
The on-screen guidance of the Financial Supervisory Service's Financial Products at a Glance reads: "variable if market rates are expected to fall, fixed if they are expected to rise." It is quoted only as disclosure wording. It is not a recommendation. Disclosed interest may be delayed, so check with the financial institution before a transaction. (S3)
3. Where to see the variable-rate benchmark
The Bank of Korea base rate is the policy rate the Bank of Korea uses in transactions such as RPs. The Monetary Policy Board meets 8 times a year. The value changed on July 16, 2026 is 2.75% (2.50→2.75). It is not the benchmark for your own variable loan. (S5, S6, Bank of Korea main page)
One variable-rate benchmark is COFIX. It is an index of the weighted average of banks' funding costs. The Korea Federation of Banks publishes the previous month's figure around the 15th of each month at 3 p.m. The surveyed funding sources are time deposits, installment savings, mutual installments, housing installments, CDs, RPs, cover bills and bank debentures (excluding subordinated and convertible bonds). There is a new-loan basis and an outstanding-balance basis. The outstanding-balance basis is less volatile. (S2, S4)
This month's COFIX % is not written here. Check it on the COFIX disclosure screen.
On the mortgage loan screen of Financial Products at a Glance, look at the rate type, reset period and early repayment fee columns. (S3) Lists of bank names and lowest rates are not given.
4. Hybrid and rate-cap loans
The Bank of Korea column: a hybrid loan is fixed for the first 3–5 years and variable after that. When the fixed period ends, it is exposed to interest rate risk. A rate-cap loan is a variable loan with a cap added, and a separate cost is added for choosing the option. (S2)
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5. Checklist
| # | Box | Where |
|---|---|---|
| 1 | Whether the rate type is fixed, variable or hybrid | Loan agreement, Financial Products at a Glance [S3] |
| 2 | Which of the three fixed-rate classification conditions in Financial Products at a Glance applies | [S3] |
| 3 | Reset period (e.g. 6 months, 1 year) | Loan agreement, [S2] |
| 4 | Linked index (COFIX new-loan/outstanding-balance, etc.) | [S2][S4] |
| 5 | Most recent change date of the Bank of Korea base rate | [S5] |
| 6 | This month's COFIX | [S4] screen |
| 7 | Disclosed rates may differ from actual terms | [S3] notes |
Sources
- [S1] Bank of Korea, 700 Economic and Financial Terms (download). 2020 PDF, "fixed interest rate" entry. https://www.bok.or.kr/portal/bbs/B0000249/view.do?nttId=235017&menuNo=200765
- [S2] Bank of Korea, "Household loan rate choices widen" (2014-07-14, Seoul Shinmun). https://www.bok.or.kr/portal/bbs/B0000218/view.do?menuNo=200147&nttId=10017570
- [S3] Financial Supervisory Service, Financial Products at a Glance, mortgage loans. https://finlife.fss.or.kr/finlife/ldng/houseMrtg/list.do?menuNo=700007
- [S4] Korea Federation of Banks consumer portal, COFIX. https://portal.kfb.or.kr/fingoods/cofix.php
- [S5] Bank of Korea base rate history. https://www.bok.or.kr/portal/singl/baseRate/list.do?dataSeCd=01&menuNo=200643
- [S6] Bank of Korea base rate definition. https://www.bok.or.kr/portal/singl/baseRate/progress.do?dataSeCd=01&menuNo=200643
- Bank of Korea main page, 2026-07-16 Monetary Policy Board 2.50→2.75. https://www.bok.or.kr/portal/main/main.do