Mortgage: Numbers to check before interest rates

If interest rates rise, will our household be okay?

When you see news about mortgages, it makes you worry, doesn’t it?
However, rather than trying to predict the direction of interest rates, there is something you can check with your current household budget: “Where can we cover the increased repayment amount from?”

How a 1% difference in interest rates reaches your household budget

Let’s compare a mortgage with a balance of 40 million yen and 30 years remaining.

In the case of “equal principal and interest repayment,” where you pay a fixed amount each month covering both principal and interest, the estimate is as follows:

• 1.0% per year: approx. 129,000 yen/month

• 2.0% per year: approx. 148,000 yen/month

• 3.0% per year: approx. 169,000 yen/month

Between 1.0% and 2.0% per year, there is a difference of approx. 19,000 yen per month, or approx. 230,000 yen per year.

*No bonus repayments. These are rough estimates assuming each interest rate continues for the remaining 30 years, and do not include fees, etc. This is neither an interest rate forecast nor the repayment amount immediately after a rate hike.

Even if the withdrawal amount is the same, the content changes

“But our repayment amount hasn’t changed.”

That can happen.

Some variable interest rate contracts have a “5-year rule” that keeps the repayment amount fixed for a certain period.

However, even if the repayment amount is the same, if the interest increases, the portion going toward repaying the borrowed money decreases.

You cannot tell this change just by looking at the withdrawal amount in your bankbook.
You need to check your contract to see if such rules exist and when they might change.

How to view a “20,000 yen monthly surplus”

As someone who has been involved in finance for 39 years, what I want to emphasize is not to feel secure based solely on the size of your annual income.

For example, even in a household budget with 20,000 yen remaining each month, if you are paying 120,000 yen in annual property taxes from that, your average monthly surplus is 10,000 yen.

This is an illustrative example, but if you forget annual expenses, you will overestimate your surplus.

Including vehicle inspections and insurance premiums, it is important to look at your annual income and expenses.

On top of that, try layering in a scenario where your monthly repayment increases by about 19,000 yen.
If that is not enough, you can consider reviewing your expenses or consulting with your lender early on.

Even if you cannot accurately predict interest rates, you can still prepare your household finances.

Today’s Key Points

• Even with the same balance and remaining years, the repayment amount changes depending on the interest rate.

• Even if the repayment amount remains fixed, the rate at which the principal decreases can change.

• Consider your household’s financial flexibility by including annual expenses.

Things you can do starting today

Open your banking app or repayment schedule and try writing down your “balance, remaining years, and applicable interest rate” on a single note. In five minutes, you can be ready to calculate your own situation.

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