Some banks raised variable interest rates by 0.62% in October. However, the increase for those currently borrowing is not that figure
On September 30, major banks announced their housing loan interest rates for October. Three banks raised their variable rates. Mizuho Bank raised its rate by 0.25% to 1.275%, Resona Bank raised its rate by 0.3% to 1.25%, and Sumitomo Mitsui Trust Bank raised its rate by 0.62% to 1.7%. The average best preferential rate among the five major banks is 1.389%, which is 0.234% higher than the previous month (Nihon Keizai Shimbun). All five banks also raised their 10-year fixed rates (NHK).
I am also scheduled to have my housing loan executed at the end of this month, and I was honestly startled by the 0.62% figure. Anyone borrowing with a variable rate would surely think, “Is our rate going up by 0.62% too?”
To conclude, this 0.62% will not be applied directly to those currently borrowing. The figures in the news are the “best available interest rates for those borrowing from now on.” The interest rates for those already borrowing move according to a different yardstick.
The interest rates for those borrowing usually move by the “amount the base rate has moved”
Variable interest rates are generally determined in the following way.
Applied Interest Rate = Base Rate – Discount Rate
The base rate is the bank’s over-the-counter rate, which is linked to the short-term prime rate. The discount rate is a reduction determined at the time of borrowing, and for variable rate loans, it is common to have a contract where that reduction continues until the loan is fully repaid.
Therefore, if the base rate rises by 0.25% later, the applied interest rate also rises by 0.25%. For example, the product description for Hyakugo Bank states, “If the housing loan base rate changes, your applied interest rate will be raised or lowered by the same amount” (Hyakugo Bank).
On the other hand, the best preferential rate for new borrowers changes not only based on the movement of the base rate but also on how the bank sets the discount rate for new loans. The fact that banks with a 0.25% increase and banks with a 0.62% increase are listed together is likely due to this difference. How much of that 0.62% is due to the base rate cannot be read from the figures in the news headlines.
This is what makes it difficult to understand. Since the news only reports figures for new loans, those who are already borrowing have no choice but to recalculate it themselves.
When it takes effect is determined by the “revision type”
Even if you know the amount of the increase, the next factor is the timing. This differs depending on the bank and the product at the time you borrowed.
Mitsubishi UFJ Bank‘s twice-a-year revision type has base dates of April 1 and October 1 every year, and the new interest rate applies from the day after the repayment dates in June and December, respectively. The change appears in the repayment amounts for July and January. Even at Mitsubishi UFJ, new loans from March 2026 onwards use a monthly revision type, where the 1st of every month is the base date (Mitsubishi UFJ Bank).
Let’s apply this current trend to the mechanism of Mitsubishi UFJ’s twice-a-year revision type. Since the base dates and the months of reflection differ depending on the bank and the contract, the timing written here is a calculation of “what happens with this type,” and it does not mean it will be the same for every bank.
(1) The Bank of Japan raised its policy interest rate in June, and banks raised their short-term prime rates (for example, Resona Bank raised its rate by 0.25% to 2.625% on August 3). If the increase was in August, it is picked up on the October 1 base date and takes effect from next January’s repayment. (2) The Bank of Japan raised its policy interest rate to 1.25% on September 18 (
NHK). Reports indicate that major banks are expected to review their short-term prime rates in November (Nihon Keizai Shimbun), and if that happens, it will be picked up on the next April 1 base date and take effect from next July’s repayment.
For those on the twice-a-year revision type, the calculation is that it will rise in two stages, delayed by half a year each. With the monthly type, it catches up much faster. Depending on which type you have, your household budget planning for next year will change.
How does the monthly repayment change when the rate rises by 0.25%?
Suppose you have a balance of 30 million yen, 30 years remaining, and a principal and interest equal repayment, and the applied interest rate rises from 0.6% to 0.85%.
If you recalculate the repayment amount as is, it goes from 91,079 yen per month to 94,439 yen, an increase of 3,360 yen. The interest for the first month goes from 15,000 yen to 21,250 yen.
However, some banks have a “5-year rule” and a “125% rule.” These rules state that even if the interest rate rises, the repayment amount remains unchanged for 5 years, and when it is changed, it is capped at 1.25 times the previous amount. In this case, the monthly withdrawal remains at 91,079 yen, and the reduction of the principal slows down by the amount the interest has increased. The principal reduced in the first month goes from 76,079 yen to 69,829 yen.
If you calculate the balance after 5 years, it will be approximately 25.37 million yen if it remains at 0.6%, and approximately 25.72 million yen if the repayment amount remains fixed at 0.85%. The difference is about 350,000 yen, and this 350,000 yen will be added to the remaining period during the repayment amount review after 5 years.
Since the withdrawal amount does not change, it is difficult to notice that it has gone up. I think this is the scariest part. Moreover, this rule may not exist depending on the bank or product.
Four points to check in the contract
If you feel anxious after watching the news, you can calculate your own increase range and timing by checking the following four points in your loan agreement (or the interest rate change notice sent by the bank).
(1) What the base interest rate is linked to (short-term prime rate or another indicator)
(2) Whether the reduction range applies to the entire period or only the initial period
(3) The review type (twice a year or monthly) and the reference date/reflection month
(4) Whether there is a 5-year rule or a 125% rule
I also intend to check these four points on the relevant pages of my contract before taking action. Rather than panicking at the 0.62% figure, it should be easier to plan next year’s household budget if you first confirm the “range of movement” and “month of movement” of your own contract.
Can you say right away which month’s payment your repayment schedule will next have an interest rate change?
For those who found this article helpful.
There is an article that calculates the post-depreciation NOI yield to the end using actual property figures. Please take a look if you like.
https://note.com/upi/n/n9891ae47edc9
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