Is early repayment of a mortgage effective now that interest rates are rising?
When you see news about interest rates, don’t you wonder, “Should I pay off my mortgage early?”
Even if you have savings, it can be unsettling to use them all for repayment when considering education expenses and retirement.
In fact, MUFG Bank announced on September 18, 2026, that it would revise the base interest rate for variable-rate mortgages starting in December.
If your loan interest rate rises, the interest savings from early repayment will increase. However, whether to rush repayment is something you should consider in conjunction with your available funds and your life in retirement.
Reducing interest and making a good choice for your overall household finances. There are conditions you should check between these two. Let’s think about how your household uses money, starting with actual bank announcements and research.
1. Even if interest rates rise, your monthly repayment amount may not change immediately
Rising mortgage interest rates are not just a topic in the news. Looking at the announcements actually published by banks, you can see what you need to check in your own contract.
In MUFG Bank’s announcement dated September 18, 2026, regarding the base rate revision from December, the timing for reflecting the new interest rate in existing variable-rate contracts depends on the type of contract. It is scheduled to be reflected from the scheduled repayment in February 2027 for monthly types, and from the scheduled repayment in July of the same year for twice-a-year types. There are exceptions for contracts with former banks, etc.
Furthermore, the bank’s announcement explains that for the applicable variable-rate, principal-and-interest equal repayment plans, while the repayment amount is fixed for a certain period, the breakdown of principal and interest changes. Principal-and-interest equal repayment is a method where the monthly repayment amount, which combines principal and interest, remains constant.
If the amount withdrawn is the same, it is easy to feel that the burden on the household budget is also the same. However, if the proportion of interest increases due to rising interest rates, the principal will decrease more slowly accordingly.
“The withdrawal amount has not changed” is not the same as “there is no impact from rising interest rates.”
This is not meant to scare you, but to provide a point for reading your contract. The mechanism for fixing repayment amounts is not common to all financial institutions or all products. Also, if you have a fixed-rate mortgage for the entire term, your contract interest rate will not change even if market interest rates rise. For fixed-period selection types, the interest rate after the fixed period ends is also a factor to consider.
Do not apply the interest rates from the news to yourself as they are; distinguish between the interest rate you are borrowing at, the timing of changes, and the repayment mechanism. That is the starting point for considering early repayment.
2. The meaning of repaying 1 million yen is not “gaining 1 million yen”
Early repayment of a mortgage has the benefit of reducing the “principal,” which is the unpaid portion of the borrowed money, in advance, thereby saving on future interest. If the principal being repaid and the remaining period are the same, the higher the borrowing interest rate, the greater the interest savings effect.
However, let’s take a look at the movement of money across your entire household budget.
If you repay 1 million yen from your available funds, your deposits will decrease by 1 million yen, and your loan balance will also decrease by 1 million yen. Your “net assets,” which are assets minus liabilities, will not change at that moment.
The economic benefit of early repayment is not the amount repaid itself, but the interest and other costs that you do not have to pay afterward.
Some people want to shorten their repayment period to eliminate payments after retirement, while others want to reduce their monthly payments. The Japan Housing Finance Agency also provides guidance on methods to shorten the term and methods to lower the monthly payment amount without changing the term. The method you choose depends on what you want to lighten.
On the other hand, the funds you have on hand also have other roles besides repayment. These include your children’s education, living expenses if your income drops, home repairs, and your life in retirement. You cannot simply withdraw the money you used for repayment like savings when you need it.
Just because you can reduce interest, if you use money meant for education expenses for repayment, your household budget might become strained elsewhere. Both the peace of mind from reducing debt and the peace of mind from having cash support your life.
The 1 million yen here is a hypothetical figure used to explain that you have personal funds that will not be used until retirement, separate from your provisions for living and education expenses. This is not an actual consultation case.
3. Even with the same 1 million yen, the money remaining after 20 years will change
When comparing early mortgage repayment and long-term investment, you must compare not only your current funds but also your monthly household expenditures.
Assume a loan with a balance of 24 million yen, a fixed interest rate of 1.5% per year, and a remaining term of 20 years. The interest rate is a hypothesis for comparison and is not the current offering rate or a future forecast for variable interest rates.
-
A: Make an early repayment of 1 million yen.Lower the monthly payment amount without changing the payoff date, and invest the saved amount every month.
-
B: Invest 1 million yen at the beginning.Do not make an early repayment and continue paying off the mortgage as usual.
What is being invested is not the money borrowed from the mortgage, but your own surplus funds that were not used for early repayment.
In case A, the monthly payment amount decreases by approximately 4,825 yen. By not spending that difference and investing the full amount, the total amount taken from the household budget for loan repayment and investment is made the same as in case B.
In both plans, the loan is paid off in 20 years. Assuming the home and other assets are the same, the remaining financial assets were calculated based on how the 1 million yen is used.
Financial assets remaining after 20 years
-
0% per year:Approx. 1.158 million yen / 1.000 million yen
-
3% per year:Approx. 1.577 million yen / Approx. 1.806 million yen
-
5% per year:Approx. 1.958 million yen / Approx. 2.653 million yen
Note: Yield after deducting operating expenses. This is a trial calculation for explanatory purposes that assumes NISA usage conditions are met and investment gains are tax-exempt, and does not include mortgage deductions, etc.
Under a 3% annual rate condition, about 230,000 yen more remains in B. On the other hand, under a 0% annual rate condition with no investment gains, A, which saved on interest, has more remaining.
Compound interest is a mechanism where earnings are added to the principal, and subsequent earnings are generated from those earnings as well. If you can invest your own funds for a long time from the beginning, you may be able to take advantage of that accumulation.
In other words, there is a reason to choose to grow your own funds for retirement rather than rushing to pay off a loan with a low borrowing interest rate. If borrowing interest rates rise, the early repayment side becomes more likely to be advantageous even with the same investment yield.
However, the investment yields in the table are not guaranteed returns. If it is a variable interest rate, future borrowing interest rates are also not fixed. It is important not to assume that the results 20 years from now are already decided just by comparing the two annual rates today.
4. Even if the balance increases, it does not necessarily mean that life in retirement will be affluent
When managing retirement funds, in addition to “how much it has increased,” a perspective of “what can be bought” is necessary. This is because if prices rise, the amount of things that can be bought with the same amount of money changes.
The IMF (International Monetary Fund) also explains that if income growth does not keep up with prices, the purchasing power of money, or the ability to buy, will decrease. You cannot tell how much leeway you have in your life just by looking at your bank account balance.
For the sake of explanation, suppose you invest 1 million yen at 3% per year for 20 years and are able to reinvest the earnings. The balance will be approximately 1.81 million yen.
However, what if prices also rise by 3% every year for the same 20 years? The amount of things you can buy with approximately 1.81 million yen is the same as 1 million yen today. The 3% annual rate is a hypothesis and not Japan’s current inflation rate or an IMF forecast.
The balance has increased. But, the purchasing power has not increased.
The “nominal yield” represents how the amount of money increases. The “real yield” is the increase in purchasing power considering price changes. It can be simply understood as “investment yield – inflation rate,” and if both are 3% per year, the real yield becomes zero.
A real yield of zero does not mean that the investment is meaningless. There is also value in being able to maintain the purchasing power of money while prices are rising.
The same perspective can be applied to borrowing. If the fixed interest rate is 1.5% per year and the inflation rate is 3% per year, the real interest rate seen as a simple difference is approximately minus 1.5%. This means you are borrowing at a lower interest rate compared to prices.
However, this does not mean that the amount of yen you return to the bank will decrease. If food and utility costs rise while your salary does not increase, your monthly budget may become tight. If it is a variable interest rate, you also need to be careful about the rise in the borrowing interest rate itself.
Just because you look at assets and borrowing under the same price conditions does not mean that the superiority or inferiority of early repayment and investment will suddenly reverse. The real interest rate is a yardstick for translating future money into daily life.
5. Even on days when stock prices move, mortgage repayments continue
The interest savings from early repayment and the expected investment gains from investing are not figures with the same level of certainty. If it is a fixed interest rate, you can estimate the interest to be saved based on the contract, but future investment returns are not fixed.
Let’s look back at one actual market movement. On August 5, 2024, the Nikkei Stock Average closed 12.40% lower than the previous business day on the Tokyo Stock Exchange. It turned to an increase the following day, the 6th. This can be confirmed by the records of Nikkei Inc., which calculates the index, and the decline rate on the 5th also matches Reuters reports from that day.
This price movement did not happen exactly the same way for all investment trusts or NISA accounts. Furthermore, one cannot judge the results of long-term investment based on a single day’s decline.
Even so, it shows that money does not always grow smoothly every year, as in a 3% annual return simulation. What if you need education funds on a day when prices have fallen? What if prices drop right before you retire? Even while asset valuations fluctuate, households with remaining debt continue to make repayments.
While the Financial Services Agency explains compound interest and long-term, diversified investment, it also points out the risk of principal loss. NISA is a system that makes certain investment gains tax-free; it is not a system to prevent losses.
What should be used for comparison is the profit after deducting taxes and expenses. For overseas assets, this includes the impact of exchange rates converted into yen. On the mortgage side, consider fees and the mortgage tax deduction you can actually receive. If your year-end loan balance decreases due to early repayment, it may affect your deduction amount.
Even if investment prospects exceed the borrowing interest rate, if the difference is small, the results can change due to price movements or changes in conditions. You should consider not just the interest rate difference, but also whether you have the leeway to continue investing until the time you need the money.
6. Turning interest rate news into decisions for your own home
When mortgage interest rates rise, what do actual borrowers think? There are hints for decision-making in the user survey published by the Japan Housing Finance Agency on February 20, 2026.
When asked about a scenario where ‘monthly repayments increase by 10,000 yen,’ 58.8% of users with variable or fixed-period choice mortgages responded that they would continue repayments because they have repayment prospects or financial leeway. This is a response to a future assumption, not the actual behavior of people whose repayments have already increased.
Looking at this result, there is no need to think, ‘I should follow the majority.’ What is important is that it is not just whether interest rates have risen, but that the leeway to continue repayments is involved in the decision. The survey subjects also do not represent all borrowers in Japan.
Some people feel relieved when their debt decreases. On the other hand, for some, maintaining a low-interest contract and investing their own funds for retirement may better suit their goals. You do not have to choose between paying everything off or investing everything.
I hope that the reasons for choosing early repayment and the reasons for continuing to invest are both connected to the life that person wants to preserve. Can you reduce your work hours after retirement? Can you protect your lifestyle even if home repair costs arise? Financial figures are tools for thinking about these choices.
The decision-making criteria can be organized into the following three points.
-
Do you have separate provisions for living expenses and education costs?Do not use up money needed in the near future for early repayment or long-term investment.
-
Can you continue investing until you use the money in retirement?Consider not only price drops but also the possibility that you might need the money sooner than planned.
-
Can you continue repayments even if you keep the loan?Based on your applicable interest rate and change timing, see if you can withstand interest rate hikes and income decreases.
The first step today is to write down in one sentence: ‘Excluding living expenses and education funds, how much personal capital do I have left that I can keep unused until retirement?’
Whether early repayment is effective depends on your borrowing interest rate and the household budget surplus remaining after repayment. Instead of being rushed by news, consider repayment and retirement funds within the same household budget. The starting point is to understand the role of the money you have on hand.
What I want to pass on to my future self is not just the numbers in a bankbook, but the ‘freedom to choose how to live.’
For those who want to read news about interest rates and stock prices in connection with their own lives:
Our free open chat, ‘Improve Your Economic Literacy in 3 Minutes a Day | Money Learning Club,’ provides easy-to-understand information on economic news, asset formation, and mortgages for beginners. We look forward to those who want to gradually develop the ability to make their own decisions about their money every day.
Premises and Supplementary Notes
This article explains systems and general mechanisms confirmed as of October 10, 2026. Bank guidance, survey results, and past stock price movements are facts confirmed by sources. The 1 million yen comparison is a trial calculation for explanation purposes and is not based on actual consultation cases or investment performance.
Calculation conditions: Current mortgage balance of 24 million yen, fixed annual interest rate of 1.5%, 240 remaining payments, principal and interest equal repayment, monthly payments only, no bonus payments. Early repayment is assumed to be a repayment amount reduction type, paying 1 million yen in principal immediately after the current scheduled repayment, with no change to the term. The current personal capital, monthly household expenses, and housing/other assets are the same for both plans. Since the mortgage balance will be zero for both plans in 20 years, the difference in financial assets in the table also represents the difference in net assets under these conditions.
Monthly repayment amount = Principal × Monthly interest rate ÷ {1 – (1 + Monthly interest rate)^(-Number of payments)}. Monthly interest rate is 1.5% annual interest ÷ 12. Before early repayment: 115,810.898 yen; after early repayment: 110,985.444 yen; difference: 4,825.454 yen. Actual bank calculations may differ due to dates, rounding, etc.
Plan A invests the full difference at the end of every month for 240 months. Plan B invests 1 million yen in personal capital as a lump sum now. If the effective annual rate of return is g, the monthly rate is (1 + g)^(1/12) – 1. Future value for B = 1 million yen × (1 + g)^20; future value for A = monthly difference × {(1 + Monthly rate)^240 – 1} ÷ Monthly rate. In the case of 0% annual return, A is monthly difference × 240 payments. Yields are after expenses, assuming all earnings such as dividends are reinvested. Trial calculations with a constant yield do not replicate differences in results due to market fluctuations or timing of investment.
Taxes and expenses: Both plans assume the use of NISA by meeting conditions such as eligible products and unused investment quotas, so taxes on investment gains are zero. Early repayment fees are assumed to be zero. Mortgage tax deductions, return of guarantee fees, and the protection value/changes in group credit life insurance are not included in the trial calculation. Loan fees already paid are common to both plans. Housing maintenance costs, etc., are also considered common and are not subject to comparison. Investments are evaluated in yen, and separate exchange rate fluctuations are not modeled.
The 3% annual inflation rate is an assumption for explanation and is not Japan’s current inflation rate or the IMF’s outlook for Japan. To convert the amount in 20 years to current purchasing power, use Future Value ÷ 1.03^20. With a 3% annual return, B is 1,806,111.235 yen, with a present value of 1 million yen. A is 1,577,221.112 yen, with a present value of 873,269.089 yen.
Display: Calculations are not rounded mid-process; the table is rounded to the first decimal place in 10,000 yen units. The difference of approximately 230,000 yen in the text is the unrounded difference of 228,890.122 yen rounded to the nearest 10,000 yen. The real interest rate of approximately -1.5% in the text is an approximation of 1.5% annual interest – 3% annual inflation rate. The strict real yield is calculated as (1 + nominal effective annual rate) ÷ (1 + inflation rate) – 1. When strictly comparing investment and borrowing, the frequency of compounding should also be aligned. The effective annual rate for borrowing at 1.5% monthly interest ÷ 12 is approximately 1.5104%.
Reference Materials (Confirmation date: All October 10, 2026)
IMF, Finance & Development “Inflation: Prices on the Rise” (Ceyda Oner, July 30, 2019)
https://www.imf.org/en/Publications/fandd/issues/Series/Back-to-Basics/Inflation
Refer to the explanation of inflation, purchasing power, and the real burden of fixed-rate contracts.
Bank of Japan “A World with Interest Rates” (Deputy Governor Ryozo Himino, January 30, 2025)
https://www.boj.or.jp/about/press/koen_2025/data/ko250130a1.pdf
Refer to the explanation of understanding real interest rates in terms of the relationship between nominal interest rates and expected inflation rates. The household trial calculations in this article are not Bank of Japan estimates.
MUFG Bank, “[Mortgage] Regarding the Revision of the Base Interest Rate for Variable Interest Rates” (Information as of September 18, 2026)
https://www.bk.mufg.jp/info/hendoukinri5.html
Confirmed the base interest rate revision starting from December 2026, the scheduled reflection of new interest rates for existing contracts, and the deferral and breakdown changes for principal and interest equal repayment. This does not apply uniformly to other banks or other contracts. Future offering rates are not listed as they are undecided.
Japan Housing Finance Agency, “Survey on the Actual Conditions of Mortgage Users [Mortgage User Survey (January 2026 Survey)]” (Published February 20, 2026)
https://www.jhf.go.jp/files/topics/4955_ext_99_2.pdf
58.8% of the text refers to “Response when repayment amounts increase” on page 20. The subjects were 1,112 users of variable and fixed-period selection types, and the responses assume a monthly increase of 10,000 yen. The survey period was January 7–20, 2026. The overall survey was an internet survey of 1,237 people nationwide aged 20 to under 70 (excluding students and the unemployed) who took out a mortgage between April and September 2025. Refinancing and renovations are excluded. These are not actual early repayment figures or the percentage of the entire population.
Nikkei Inc., “Nikkei Stock Average Profile: Daily Summary (August 5, 2024 and August 6, 2024)”
https://indexes.nikkei.co.jp/nkave/archives/summary?dt=20240805&idx=nk225
https://indexes.nikkei.co.jp/nkave/archives/summary?dt=20240806&idx=nk225
Nikkei Stock Average at the close of cash trading on the Tokyo Stock Exchange. Confirmed the closing price of 31,458.42 yen on the 5th, a 12.40% decline from the previous business day, and the closing price of 34,675.46 yen on the 6th. Distinguished from individual investment performance. The decline rate in the text adopts the official display.
Reuters, “Nikkei average falls for 3rd straight day, record 4,451 yen drop; panic selling due to US economic concerns and yen appreciation” (August 5, 2024)
https://www.reuters.com/jp/markets/japan/funds/AA5S3VVJPBJRTPSCALEVHW6DDA-2024-08-05/
Verified the closing price and the decline rate from the previous business day on August 5, 2024, with independent reports.
MUFG Bank, “What happens to interest rate changes and repayment amount revisions while using a mortgage?”
https://faq01.bk.mufg.jp/faq/show/717?site_domain=default
Confirmed the revision of applicable interest rates and repayment amounts for each interest rate type.
Financial Services Agency, “Basics of Asset Formation”
https://www.fsa.go.jp/policy/nisa2/invest/index.html
Confirmed compound interest, long-term/installment/diversified investment, and the possibility of principal loss.
Financial Services Agency, “Knowing NISA”
https://www.fsa.go.jp/policy/nisa2/know/index.html
Check the tax-exemption system for applicable investment gains.
Japan Housing Finance Agency: “Early Repayment (for individual housing loans)”
https://www.jhf.go.jp/hensai/kuriage/index.html
Check the two methods of early repayment and their impact on repayment amounts and terms.
National Tax Agency: “No. 1211-1: In the case of newly building a house, etc., and using it for residential purposes in or after 2022 (Special Deduction for Housing Loans, etc.)”
https://www.nta.go.jp/taxes/shiraberu/taxanswer/shotoku/1211-1.htm
Check the relationship between the year-end loan balance and the mortgage deduction.
National Tax Agency: “Repayment period in the case of early repayment, etc.”
https://www.nta.go.jp/law/shitsugi/shotoku/06/10.htm
Check the impact of shortening the period on deduction requirements. The 10-year judgment period refers to the time from the first repayment to the final repayment, not the remaining period.
Disclaimer
This article is for general financial education purposes and does not individually recommend specific financial products, early repayments, or investments. Investment results are not guaranteed, and there is a possibility of loss of principal. For actual choices, it is necessary to check contract details, taxes and fees, household finances, the timing of fund usage, and acceptable losses.