What happens to your assets and lifestyle if mortgage interest rates rise from 1% to 2% or 3%? Comparing asset graphs for a household with a 9 million yen annual income and a …

Hello. This is Yamamoto.

Mortgage interest rates have risen significantly over the past few years.

Until recently, the feeling was that ‘variable rates are around 0.x%,’ but lately, rates around 1% have become common.

Whether you are planning to buy a home or already have a variable rate loan,
‘Will I be okay if interest rates keep rising like this…?’
I think many people are feeling anxious.

I am also considering buying a home, so the impact of rising interest rates is something I am quite concerned about, and I have been researching it extensively.

However, even when I look up the effects of interest rate hikes on the internet or YouTube,
most comparisons only look at mortgage repayment amounts, such as
‘monthly repayments will increase by 20,000 yen,’ and

what I really wanted to know,

‘What will my life be like if interest rates rise??
How much will my lifetime asset trajectory change?’

was something I couldn’t easily find out.

So, this time, I used my own life plan simulator to compare the lifetime asset trajectory using graphs.

Simulation conditions for this time

This time, I have set conditions that are relatively easy to visualize for a household with children in their 30s to 40s.

・Husband 33 years old, wife 33 years old
・Two children. One is 0 years old, the other will be born in 3 years
・Household annual income 9 million yen
・Current financial assets 15 million yen, of which 5 million yen is invested
・Purchase a 50 million yen home in 2026.
No down payment, 50 million yen full loan
・4 million yen in purchase costs paid in cash
・Repayment period 35 years
・Purchased a used car at the same time as the home purchase
・Retirement bonus for the couple totals 25 million yen
・Both children attend public schools through university
・Education expenses, living expenses, home maintenance costs, car, and retirement costs are also reflected

In making the comparison, the only condition I am changing is the interest rate.

① 1% for the entire 35 years
② 2% starting in 2030 (4 years from now)
③ 3% starting in 2030 (4 years from now)

All other conditions are the same.
Details regarding the education expenses, living expenses, inflation rate, travel expenses, and home repair costs used this time are here.

While actual interest rates will not change suddenly in 2030,
I have intentionally simplified this to see the impact of interest rate hikes.

If the interest rate is 1%, there is quite a bit of leeway

First, let’s look at the case where the 1% interest rate continues to the end.

The total mortgage payment amount is 59.28 million yen.

Since I am borrowing 50 million yen, this is calculated as paying back an additional 9.28 million yen including interest.

The blue line on the graph represents total assets, and the purple line represents the portion of total assets currently invested.

At 1%, assets decrease immediately after purchasing the home due to closing costs and car purchases, but after that, assets gradually increase, and they do not hit rock bottom even in the 50s and 60s when education expenses are high.

Even after receiving retirement money in old age, assets continue to grow, resulting in a total of nearly 100 million yen.

Since this is a projection for over 70 years into the future, I do not intend to take these figures literally, but at least it shows that under these assumptions, things will progress with plenty of room to spare if the interest rate is 1%.

If rates hit 2% in 2030, the landscape changes significantly

Next is the case where the interest rate becomes 2% starting in 2030.

The total mortgage payment amount is 67.37 million yen.

This is an increase of approximately 8.09 million yen compared to if it had remained at 1%.

Up until the early 40s, there is not that big of a difference compared to the 1% case.

However, the gap gradually widens.

Assets decrease significantly from the 50s when education expenses are high, dropping to around a few million yen around age 60.

They recover to around 30 million yen after receiving retirement money, but assets remain mostly flat thereafter.

Around age 100, it is about 100 million yen at a 1% interest rate, compared to about 20 to 30 million yen at a 2% interest rate.

Although the difference in total mortgage payments is only about 8 million yen, the difference in total assets over a lifetime has widened to tens of millions of yen.

Of course, since this is a projection spanning over 70 years, I do not intend to view this difference itself as an accurate prediction. However, it is clear that having more money go toward the mortgage significantly impacts long-term asset formation.

If rates hit 3% in 2030, assets will hit rock bottom along the way

Furthermore, at a 3% interest rate.

The total mortgage payment amount is 76.15 million yen.

The difference compared to a 1% interest rate is approximately 16.87 million yen.

Even though you bought a 50 million yen home, you will end up paying over 76 million yen just for the mortgage.

This resulted in a rather severe outcome.

Assets decrease rapidly from the late 40s, and by the 50s, there are almost no financial assets left.

They recover once with the retirement bonus, but then assets decrease again.

Before reaching age 80, financial assets became almost zero.

With this result, it would be difficult to maintain the current standard of living, and it seems necessary to review the frequency of travel, living expenses, and educational costs.

Under these conditions, the housing price is about 5.5 times the annual income.
The starting financial assets are also 15 million yen, so it does not look like an extremely unreasonable condition.
Both children attend public schools through university.

Even so, it turned out that life would be quite difficult at a 3% interest rate.

Of course, I am not predicting that it will definitely reach 3% in the future.
The important thing is to check in advance whether you can maintain your lifestyle even if it does reach 3%.

When arranged by interest rate, the difference in mortgage payments alone is this significant

Summarizing the total mortgage payments under each condition,
Staying at 1%: 59.28 million yen
2% from 2030: 67.37 million yen
3% from 2030: 76.15 million yen
resulted.

The difference between 1% and 2% is 8.09 million yen.
Between 1% and 3%, it is 16.87 million yen.

This alone is large, but the difference widened even further in the life plan.

The reason why the calculated difference widened this much

One of the reasons why the results changed so significantly with just a 1-2% difference in interest rates is that
in this simulation, most of the surplus funds are allocated to asset management.

Under these premises, once invested assets increase to a certain level, the assumed investment returns cover a significant portion of living and educational expenses.

Then, it becomes harder to dip into the principal, entering a virtuous cycle where investment returns increase further.

Conversely, if interest rates rise, more money goes toward the mortgage, making it harder for invested assets to grow and making it difficult to enter this virtuous cycle.

Since this is a very long-term simulation, the results are a bit extreme, but
it is a result that clearly shows not only the effect of a 1% mortgage interest rate but also the magnitude of the effect of investing a substantial amount of assets.

Looking at whether you can lead a life without strain, rather than whether you can pay now

After running this simulation, I realized once again that when considering a mortgage, you shouldn’t just look at
“whether you can make the monthly payments with your current income.”

Even in this 3% case, your household finances won’t immediately become strained right after buying the house.
You can live normally in your 30s and early 40s.

The problems arise more than a decade later.
This is in your 50s, when children’s education expenses increase and costs like car replacements and home repairs pile up.

Since that is still far off when you buy a home, if you only look at the monthly mortgage payments, the hardship during this period is hard to see.

And it’s not like you’ll be unable to live immediately if your assets run out.

Reduce travel.
Downgrade your car.
Cut back on children’s education expenses.
Reduce daily living expenses.

If you do that, you might be able to keep paying the mortgage itself.

But what I want to know before buying a home is not
“whether I can pay off the mortgage,”
but
“whether I can pay it off while maintaining the lifestyle we want to lead.”
.

It would be a shame to buy a house only to have to give up almost all travel and hobbies just to pay the mortgage.

It would mean unnecessarily narrowing your children’s career paths because of money.

That is a little different from the “home you can afford without strain” that I have in mind.

That is why when looking at a life plan, I think it is more important to look not just at the final assets in retirement, but at

“how much in assets remains during the time in life when expenses are highest.”

In the end, should you choose a variable or fixed interest rate?

I understand that the impact of rising interest rates is significant.
So, should you choose a fixed rate? Not necessarily.

If variable rates continue to stay at this low level, a variable rate could potentially be more advantageous.

Conversely, if they rise significantly, it might turn out that choosing a fixed rate from the start would have been better.

Personally, rather than trying to predict and bet on future interest rates, I think you should borrow only after confirming
“whether your household finances can withstand a rise in interest rates.”

For example, if you borrow at a 1% variable rate, what happens if it rises to 2% or 3%?

If possible, you should check once whether your household finances can function even if rates rise to a level close to current fixed rates.

Run a life plan simulation for each scenario to see:
Will assets remain even at the peak of education expenses?
Can you maintain your lifestyle without drastically cutting back on travel or hobbies?
Does it look like you can secure enough funds for retirement?

After confirming all of this,
set a home price that makes you feel,
‘I think I’ll be okay even if interest rates rise to this level.’

Personally, I find this order to be the most logical.

It is not as simple as saying variable rates are dangerous and fixed rates are safe.

Even with the same mortgage, the interest rate a household can withstand varies completely depending on their income, assets, education expenses, and living costs.

The amount you can get approved for in a mortgage and the amount you can comfortably repay are two different things.

That is precisely why I believe it is worth performing a stress test using your own household’s numbers before purchasing a home.

I want to make it easy for everyone to try out their own ‘personal case’.

What I used this time is a life plan simulator I built myself using AI.

It allows you to view graphs in real-time while adjusting not only home prices and mortgage interest rates, but also annual income, number of children, educational plans, and living expenses,

so you can confirm,
‘What would happen in my specific case?’

I plan to release this as a free site that anyone can use in the future.

Just like I did this time,

you will be able to check how things change by adjusting conditions yourself, such as:
What happens if interest rates rise by 1%?
What happens if the home price is lowered by 5 million yen?
What happens if household income decreases?

What happens if education expenses increase?

It is currently under preparation, so I would be happy if you could try it out once it is released.

If you have any requests for individual life plan consultations,
‘I want you to calculate based on these conditions!’
or ‘I want you to compare this pattern too!’,
please feel free to leave a comment!