[VOL.126] Variable or Fixed Rate Mortgage? Household Finances That Can Withstand Rising Interest Rates: What to Consider Before Asking ‘Which Is More Profitable’

Hello. Thank you for always reading my blog. ? Variable or Fixed? What to Consider BeforehandWhen buying a home, “I wonder if a variable or fixed interest rate is better for a mortgage” is a concern for many people. Variable rates have lower initial interest rates. On the other hand, with a fixed rate, you can lock in your repayment amount even if interest rates rise in the future. Hearing that, “Will interest rates rise from here on?” “Should I switch to a fixed rate now?” “Is a variable rate still more profitable?” tends to become the topic of conversation. However, mortgages are products that span a long period of 35 years, or recently, 40 or 50 years. It is impossible to accurately predict interest rates 35 years from now at the current moment. Therefore, this time, instead of asking ‘which will be more profitable in the future, variable or fixed,’ I would like to think from the perspective of whether the plan allows the family to continue paying off the mortgage even if interest rates move in a direction different from expectations. In 2026, the interest rate environment surrounding mortgages is actually changing significantly. What is happening now? And what should those buying a home check? I will organize this while also calculating specific repayment amounts. ? In 2026, the interest rate environment surrounding mortgages is changingAt its Monetary Policy Meeting in June 2026, the Bank of Japan raised its short-term policy interest rate from the previous level of around 0.75% to around 1.0%. The most frequent value for the short-term prime rate of major banks published by the Bank of Japan also reached 2.375% in August 2026. On the other hand, Mizuho Bank’s long-term prime rate became 3.40% per annum starting September 10, 2026. Both short-term and long-term interest rates are in an environment where people are more conscious of rising interest rates than before. However, there is one thing I would like to clarify here. ? The variable rate has not risen just because the long-term prime rate has risenWhen you see the figure “Long-term prime rate rose to 3.40%” in the news, you might think, “So, has the variable mortgage rate also risen?” However, it is not accurate to connect the two directly. Although the mechanism differs depending on the financial institution, many mortgage variable rate products are determined based on short-term interest rates such as the short-term prime rate.On the other hand, long-term mortgage rates, such as all-period fixed types, are more susceptible to the influence of long-term market interest rates. In other words, to summarize broadly, Variable rate? Susceptible to the influence of short-term interest rates Fixed rate? Susceptible to the influence of long-term market interest rates is the difference. The long-term prime rate is also one of the indicators for looking at the long-term interest rate environment, but “Since the long-term prime rate rose by 0.15%, the fixed mortgage rate will also rise by the same amount”is not how the mechanism works. You need to check the base interest rate and determination method for each mortgage product. ? Variable rates are actually risingSo, what is happening with mortgages themselves? The base interest rate for new variable rate mortgages at Sumitomo Mitsui Banking Corporation has risen from August 2026: 3.125% ? September 2026: 3.375%. At Mitsubishi UFJ Bank, for new borrowings in September 2026, is what they have set. Mizuho Bank also advises that if you borrow at a variable rate of 1.025% or more by September 30, 2026, it will become 1.275% or more starting from the January 2027 repayment, reflecting the revision of the short-term prime rate. What to be careful about here is the point that ‘base interest rate’ and ‘actual applied interest rate for borrowing’ are not the same. Even if you see figures like “3% range mortgage interest rate” in the news, you need to check whether it is the over-the-counter base rate or the rate actually applied after preferential treatment. Also, the applied interest rate changes depending on the financial institution, borrowing conditions, self-funding, screening results, and the details of group credit life insurance. ? Fixed rates will also be borrowed at ‘current interest rates’So, “If interest rates are rising, wouldn’t it be safer to choose a fixed rate?” some people might think. If it is an all-period fixed interest rate, even if market interest rates rise after the contract, in principle, you can fix the contracted interest rate and repayment amount until the loan is fully paid off. This is a major merit of fixed interest rates. However, you must consider that the interest rate itself at the time you choose a fixed rate is higher than before. For Flat 35 in September 2026, for a loan period of 21 years or more and 35 years or less with a loan-to-value ratio of 90% or less, the most common interest rate is 3.460% per annum. At Mitsubishi UFJ Bank, in September 2026, is the rate. In other words, variable rates keep the current interest rate relatively low in exchange for bearing the risk of future interest rate hikes yourself.all-period fixed rates have the characteristic that the current interest rate becomes higher than the variable rate in exchange for suppressing the risk of future interest rate hikes.It is not the case that one is always more profitable than the other. ? 75% of people who actually used a mortgage chose the variable typeAccording to the Japan Housing Finance Agency’s “Mortgage User Survey (January 2026 Survey),” the interest rate types for mortgages actually used were: was the result. Variable-rate mortgages are overwhelmingly common. On the other hand, in the same survey, “how much the repayment amount will increase if interest rates rise in the future”regarding interest rate risk, “a little anxious about whether I understand it””do not understand it well””do not understand it at all”totaled 52.0% among respondents. Choosing a variable interest rate itself is not the problem. However, if you choose a variable interest rate, it is important to understand how your household finances will change when interest rates riseI believe.Understand how your household finances will change when interest rates rise? Minister Katayama also mentions the interest rate risk of 40- and 50-year mortgagesAt the press conference on September 8, 2026, there was a question about ultra-long-term housing loans such as 40- or 50-year mortgages. Minister of Finance and Minister of State for Financial Services Katayama stated, as a general matter, that if variable interest rates rise, monthly repayment amounts or total repayment amounts could increase significantly depending on the contract terms, and that it is important for users to understand interest rate risk and for financial institutions to provide sufficient explanations. The Financial Services Agency also stated that it will keep a close watch on the explanations and screening systems of financial institutions. This is not a statement that “50-year loans should be banned”or that “the government will regulate ultra-long-term loans.” What is important is the point that the longer the repayment period, the more you need to consider the possibility that interest rates and household financial circumstances will change along the way. ? Not “which is more profitable,” but whether you can pay even if interest rates riseFrom here, let’s think using concrete numbers. As of September 2026, products with new variable interest rates in the low 1% range can be confirmed. Therefore, for the purpose of explanation, 1.2% per yearwill be used as the baseline. And,
1.2%
1.7% (+0.5%)
2.2% (+1.0%)
2.7% (+1.5%)
We will compare the cases when the rate becomes these values. *The following is a simple comparison assuming that “each interest rate remained constant for 35 years.” It does not reproduce the process of interest rate increases in actual variable rate contracts or the timing of repayment amount changes due to the 5-year rule, etc.Fees, insurance premiums, bonus repayments, etc., are not included. ? If borrowing 30 million yen over 35 yearsAt 1.2% per year, it is about 87,500 yen per month. This becomes: 1.7% ? about 94,800 yen per month 2.2% ? about 102,500 yen per month 2.7% ? about 110,500 yen per month. Even just a 1% difference, from 1.2% to 2.2%, results in a difference of about 15,000 yen per month. That is about 180,000 yen per year. ? For 40 million yen, a 1% difference is about 20,000 yen per monthWith a 40 million yen loan over 35 years, 1.2% ? about 116,700 yen per month 1.7% ? about 126,400 yen 2.2% ? about 136,600 yen 2.7% ? about 147,300 yen. Assuming it rises from 1.2% to 2.2%, it results in a difference of about 20,000 yen per monthabout 240,000 yen per year. In terms of total repayment amount, assuming the same interest rate for all 35 years, 1.2% ? about 49.01 million yen 2.2% ? about 57.39 million yen. The difference is about 8.38 million yen. Of course, the actual variable interest rate will not remain constant for 35 years. What I want you to see here is that even if you borrow the same 40 million yen, the burden on your household finances changes significantly depending on the interest rate. ? At 50 million yen, the impact is even greater For 50 million yen over 35 years, 1.2% ? about 145,900 yen per month 1.7% ? about 158,000 yen 2.2% ? about 170,800 yen 2.7% ? about 184,200 yen. Between 1.2% and 2.7%, there is a difference of about 38,300 yen per month. That is about 460,000 yen per year. When considering a mortgage, do not just judge based on ‘I can pay it at the current interest rate,’ but also check what if it is +0.5%?what if it is +1.0%?can the family maintain their lifestyle even at +1.5%?. This is why it is important to confirm these scenarios. ? The ‘5-year rule’ does not mean you are ‘safe for 5 years’A common term heard regarding variable interest rates is the ‘5-year rule.’ For example, with variable rate, principal and interest equal repayment mortgages at Mizuho Bank or Sumitomo Mitsui Banking Corporation, there is a mechanism where the monthly repayment amount does not change for a certain period even if the interest rate changes. However, repayment amount not changing does not mean you are unaffected by interest rate hikes. When interest rates rise, within the same repayment amount, the proportion of interest increases, and the principal decreases more slowly.In other words, if you only look at the monthly withdrawal amount, it may not have changed, but the content of the mortgage has changed. ? The ‘125% rule’ is also not a ‘system that protects the total repayment amount’Another one is the ‘125% rule.’ When reviewing repayment amounts after 5 years, etc., even if interest rates have risen significantly, this mechanism keeps the new repayment amount within 125% of the previous one. For example, if the repayment amount was 100,000 yen per month, the idea is that it will generally be capped at 125,000 yen even after the review. However, it is not a system that keeps the total repayment amount within 125%.If interest rates rise significantly, interest burdens increase, the principal may decrease more slowly, and depending on the product, unpaid interest may occur. Furthermore, the existence and content of the 5-year rule and 125% rule vary depending on the financial institution, product, and repayment method. Some products, such as principal equal repayment, are not eligible. When signing a mortgage contract, instead of asking ‘Is there a 5-year rule?’, you should confirm ‘If interest rates rise, how will the repayment amount and principal of this product change?’. ? Do not decide on 40-year or 50-year loans based solely on low monthly paymentsRecently, mortgages exceeding 35 years have become an option. Extending the repayment period naturally makes it easier to lower monthly repayments. For example, assuming you borrow 40 million yen at 1.2% per year: 35 years ? about 116,700 yen per month ? total repayment about 49.01 million yen 40 years ? about 105,000 yen per month ? total repayment about 50.38 million yen 50 years ? about 88,700 yen per month ? total repayment about 53.21 million yen. By choosing 50 years, you can lower the monthly payment by about 28,000 yen compared to 35 years. This is a major benefit. On the other hand, because the repayment period is longer, the total interest paid increases.Furthermore, if you perform the same calculation at 2.2%, the total repayment amount for 50 years becomes about 65.99 million yen. The result changes significantly not only due to the repayment period but also due to the interest rate. Note that this was calculated at the same interest rate to see the difference in period alone. In reality, some products add interest when the repayment period is longer. For example, at au Jibun Bank, there is a 0.1% annual interest rate surcharge for long-term repayments of 35 years and 1 month or more. Also, for Flat 50, in principle, the shorter of ’50 years’ or ’80 years minus age at application’ is the maximum repayment period. Instead of just ’50 years because the monthly payment is cheaper,’ you need to look at what age you will finish repaying. ? ‘The amount the bank will lend’ and ‘the amount you can repay without difficulty’ are different When considering a mortgage, ‘You can borrow up to XX million yen based on your annual income’ is a topic that comes up. For example, with Flat 35, regarding the total repayment burden ratio, there is a standard of: Annual income under 4 million yen ? 30% or less Annual income 4 million yen or more ? 35% or less. This is judged including other loans such as car loans, education loans, and card loans, not just the mortgage. However, this is a standard for receiving a loan. It does not mean ‘if your annual income is 4 million yen or more, there will be no problem with your life even if you use 35% of your income for a mortgage.’ Every family has their own
Food expenses
Utility costs
Education expenses
Car
Medical expenses
Hobbies
Travel
Retirement funds
exist. And for the house itself, there are also and other maintenance and renewal costs are required. Being able to pay a mortgage and being able to maintain that house without strain are not the same thing.The ‘amount the bank will lend’ and the ‘amount you can comfortably repay’ are different? Reconsidering the ‘housing budget itself’ before choosing an interest rateThis is something I would especially like to convey from the perspective of designing houses. When it comes to mortgage consultations, people tend to focus on interest rate products, such as ‘whether to choose variable’ or ‘whether to choose fixed.’ But there is another way. It is to lower the loan amount itself.For example, if you borrow 45 million yen at 1.2% for 35 years, it is about 131,300 yen per month. If you review the house and land plan by 3 million yen and make it 42 million yen, it is about 122,500 yen per month. If you review it by 5 million yen and make it 40 million yen, it is about 116,700 yen per month. Between 45 million yen and 40 million yen, there is a difference of about 14,600 yen per month. Furthermore, if the interest rate was 2.2%, 45 million yen ? about 153,700 yen per month 42 million yen ? about 143,500 yen per month 40 million yen ? about 136,600 yen per month becomes the result. Between 45 million yen and 40 million yen, there is a difference of about 17,100 yen per month. In other words, lowering the loan amount also leads to creating a buffer against interest rate hikes.? So, what should you cut from the house?What I want to be careful about here is that ‘lowering the budget = cutting everything related to housing performance’ is not the case. For example,
seismic performance
Waterproofing to prevent leaks
Basic performance of insulation and airtightness
Ground and foundation
Parts that are difficult to fix later
If you simply cut back on these, it may affect future safety and maintenance costs. On the other hand,and the like can sometimes be reviewed depending on the plan. When thinking about mortgage interest rates, instead of just looking at financial products, go back to the housing plan itself. I think this is also an important option. ? If you are a dual-income household, don’t decide based solely on ‘current household income’In the case of a dual-income household, if you combine the current annual incomes of both spouses, the amount you can borrow increases. However, over 35 or 40 years,
childbirth
childcare leave
shortened working hours
changing jobs
illness
caring for parents
and other events may occur. It is also possible that a period of rising interest rates could coincide with a period when household income temporarily decreases. Therefore, ‘We can pay with our current combined income’is not enough; ‘Can we pay even if one of our incomes temporarily decreases?’is a check you should also perform. ? 40 million yen means something different in your 30s than in your 50sEven with the same 40 million yen mortgage, the impact on household finances changes depending on the age at which you borrow. If you are in your 30s, and so on. If you are in your 50s,
Retirement timing
Pension
Post-retirement income
Retirement funds
Timing of home repairs
Age at final repayment
become important. Therefore, “Variable rates are for young people””Fixed rates are the right choice for those in their 50s”—you cannot decide based on age alone. You need to consider the household’s income, savings, future expenses, and repayment period in combination. ? Perspectives when checking if a variable rate is suitableVariable rates have the advantage of keeping initial interest rates low. If you choose one, ? Can you maintain your household finances even if interest rates rise by +1%?? Have you avoided borrowing more than necessary?? Do you have some leeway in your savings?? Will it overlap with major expenses like education costs?? Do you understand how repayment amounts work when interest rates rise?? Do you have the capacity to consider early repayment or refinancing?These are things you should check. ? Perspectives when checking if a fixed rate is suitableFixed rates have the advantage of not being affected by future interest rate hikes, making it easier to plan repayments. If you choose one, ? Do you want to lock in your monthly repayment amount for a long period?? Do you have little capacity in your household budget to absorb interest rate hikes?? Are you planning for a long-term repayment?? Do you want to make it easier to grasp future expenses like education and retirement funds?? Can you comfortably repay even at the current fixed rate?Think about these. Rather than a “product to avoid loss,” fixed rates might be easier to think of as a choice to lock in current rates to minimize the risk of not knowing future interest rates. ? Things to check with your family before deciding on a mortgageFinally, when considering a mortgage, “Variable or fixed?”don’t just look at that; try checking in the following order: ? Is the total amount spent on acquiring the home reasonable?? How much will the monthly payment be at the current interest rate?? How much will it be if the interest rate rises by +0.5%?? What about +1.0%?? Can you maintain your lifestyle even at +1.5%?? Have you considered repair costs and taxes other than the mortgage?? Will the peak of children’s education expenses overlap with repayments?? How much of the mortgage will remain at retirement?? If you are a dual-income household, can you cope if one income decreases?? Is there room to reconsider the home or land budget by 3 million or 5 million yen?Based on that, which is more suitable for your household, a variable or fixed rate?think about this.Toward a plan where you can live even if your predictions are wrong? Summary | Toward a plan where you can live even if your predictions are wrongIn 2026, the interest rate environment surrounding mortgages is definitely changing. The Bank of Japan’s policy interest rate is around 1.0%, and the short-term prime rate has also risen. The impact is beginning to appear in variable mortgage rates as well. On the other hand, fixed rates will also be borrowed at levels reflecting current market rates. So, which will ultimately be more profitable, variable or fixed? There are parts of this that won’t be known until 35 years from now. Therefore, what you want to think about when buying a home is not predicting and guessing interest rates, but making a plan that can protect your life even if your predictions are wrong.Don’t just look at the current repayment amount; +0.5%.+1.0%.+1.5%.Try calculating for each of these. If it becomes difficult after that, don’t just consider the interest rate type, but reconsider the home acquisition budget itself.Spending 5 million yen more on land or a building versus leaving 5 million yen of leeway in your household budget over 35 years. Which one suits your life better? I hope you will talk about it with your family once before deciding on a mortgage. Thank you for reading to the end. If you found this article helpful, I would appreciate it if you could like or follow. ? References and Sources?Bank of Japan: “Changes to the Guideline for Market Operations,” “Trends in Long- and Short-Term Prime Rates (Major Banks)”?Mizuho Bank: “Long-Term Prime Rate,” “List of Mortgage Interest Rates,” “How Variable Rate Systems Work”?Mitsubishi UFJ Bank: “Mortgage Interest Rates”?Sumitomo Mitsui Banking Corporation: “Mortgage (New) Interest Rate Level Trends,” “Variable rates have risen, but does it affect repayment amounts?”?Japan Housing Finance Agency: “Survey Results on Mortgage Users (January 2026 Survey),” “Flat 35 Interest Rate Information”?Ministry of Finance: “Summary of Press Conference by Minister of Finance and Minister of State for Financial Services Katayama after Cabinet Meeting (September 8, 2026)”?Interest rates, systems, and product information in the article were confirmed as of September 12, 2026.?Related articles you might also want to read