I am often asked, 'Will interest rates rise further?', so I will answer honestly
‘Are interest rates still going to rise now?’
Recently, I have been asked this more and more.
The reason is clear: on September 18, the Bank of Japan decided at its Monetary Policy Meeting to raise the policy interest rate by 0.25% to 1.25%.
It was covered extensively in the news, so I imagine many of you saw it.
Honestly, it is difficult to answer this question in a single word.
However, I would like to share what is known as honestly as possible.
If you just know this much, you will be fine.
What this interest rate hike actually means
How does a 1.25% policy interest rate affect mortgages?
When the policy interest rate rises, the bank’s procurement costs increase, which then spreads to mortgage interest rates. However, the policy interest rate does not become the mortgage interest rate directly.
The timing and extent of the reflection differ by bank, and individual circumstances such as campaign interest rates also come into play.
News figures and actual borrowing rates are different
Some people see the news that ‘the policy interest rate has risen by 0.25%’ and think, ‘My loan will also go up by 0.25%.’ However, it is not that simple in reality.
Variable-rate mortgages are reviewed according to the bank’s own standards, so they do not move in perfect lockstep with the policy interest rate.
This is a point that is easy to confuse.
You can just view the news about the policy interest rate as one piece of reference information.
Fixed vs. variable: How to think about it in the current situation
The reason more people are choosing fixed rates
With the continued news of rising interest rates, I am honestly getting more consultations from people saying, ‘I want to switch to a fixed rate because I am afraid of it rising any further.’ I get the impression that many people prioritize the peace of mind that comes with knowing their future repayment amounts.
The mindset of those who decide that staying with a variable rate is fine
On the other hand, some people decide to ‘wait and see for a while because my current repayment amount is manageable.’ Since variable interest rates are generally set lower than fixed rates, the idea of putting the difference into savings is also a valid approach.
Rather than one being the ‘correct’ answer, I believe it depends on how much leeway you have in your household budget.
You can start by thinking about which type you are closer to.
How much will the repayment amount change if interest rates rise?
Try running a simulation
For example, if you calculate a loan of 40 million yen over 35 years, if the variable interest rate rises from 0.5% to 0.75%, the monthly repayment amount will increase by approximately 4,000 to 5,000 yen.
Since these figures change depending on the loan amount and repayment period, please treat them only as a rough guide.
Things to keep in mind even for a difference of a few thousand yen
You might feel it is ‘only a few thousand yen,’ but over a 35-year period, that difference is by no means small. It is worth checking how much leeway you have in your household budget.
If you are concerned, I recommend running a simulation with your actual loan conditions.
Should you consider refinancing now?
People who benefit from refinancing and those who do not
Refinancing involves various costs, so whether it is beneficial depends on the interest rate difference, the remaining loan balance, and the remaining repayment period. Generally, it is said that the larger the remaining debt and the longer the remaining repayment period, the easier it is to see the benefits of refinancing.
A guide for judging the timing
There is no need to panic about whether you should act right now. First, check your current loan’s interest rate type and balance, and start by running a simulation to see how much it would change if you refinanced.
Why ‘rising interest rates’ does not mean ‘you should act immediately’
Mistakes that tend to happen when you act in a panic
If you act in a panic after seeing news about interest rates, your property selection and financial planning may become sloppy. Decisions like ‘I just refinanced’ or ‘I just bought this house now’ can lead to regrets later, thinking, ‘I should have thought about it more carefully.’
Base your decisions on your own situation rather than market conditions
Marriage, childbirth, job transfers, changes in the family. The timing of these life events actually has a greater significance in the decision to purchase a home.
Interest rates are just one factor to consider. You don’t have to make a decision based on them alone.
Conclusion: How to deal with interest rate news
To be honest, no one knows the answer to ‘Will interest rates rise further?’
However, I believe that simply knowing what this rate hike means and how it affects your own situation will change how you approach the news.
If you have any concerns, please feel free to ask me anytime.
If you would like to consult with me individually, please feel free to contact me via my official LINE account (https://lin.ee/8ijZzOu) or by DM on Instagram (@fudosan_agent_hamada).