November 5, 2026

Which is more profitable: early repayment or NISA? In a 1-million-yen, 20-year calculation, NISA was about 320,000 yen higher even at a 2% interest rate (assuming projections …

If you put 1 million yen toward repaying a loan with a 2% interest rate over 20 years, it amounts to about 1.49 million yen, while a 3% annual return in NISA would be about 1.81 million yen. However, if the investment return is 0% per year, it remains 1 million yen (hypothetical calculation).

Hello everyone! I’m Uta, a salaryman working in research.

This may be sudden, but have you ever wondered, “Should I put my extra money toward early repayment or NISA?”

For those with a mortgage, I think this is a troubling question…

Today, I will compare the amounts after 20 years for 1 million yen by changing the assumptions for interest rates and investment returns. This is not an article recommending buying, selling, or repaying, but rather an article that uses numbers to verify where the answer diverges.

First, the conclusion

If you put 1 million yen away for 20 years, if you put it toward repayment, it becomes about 1.1 million yen at a 0.5% interest rate, and about 1.49 million yen at 2% (hypothetical calculation)
With NISA, at 3% per year it is about 1.81 million yen, and at 5% per year it is about 2.65 million yen. If projections hold true, the difference is about 320,000 yen even at a 2% interest rate
However, if the investment return is 0% per year, it remains 1 million yen. Repayment (at a 2% interest rate) is about 490,000 yen higher. The difference is that the result of repayment is fixed, while investment is based on projections

Assumptions for the calculation (these are hypothetical conditions)

Early repayment is simplified by assuming it is “the same as compound interest investment at that interest rate.” This differs slightly from actual repayment calculations (such as equal principal and interest or loan term reduction types).
The 3% and 5% annual returns for NISA are hypothetical assumptions. In reality, it does not increase by the same amount every year. Fees and taxes (NISA is tax-exempt) are not included.
According to the National Tax Agency, for new construction, 0.7% of the year-end balance is deducted from income tax and resident tax (the deduction period and limit vary depending on the time of residence and type of housing). I have not included this in the charts in this article, but have only mentioned it in the text.
The 1 million yen is assumed to be money that can be used freely, separate from living expenses or emergency funds.

Let’s start by looking at the numbers!

Rather than relying on intuition, let’s start by looking at the numbers!

Chart: Amount after 20 years for 1 million yen (hypothetical calculation. Source: Calculated by myself. Formula: 1 million yen × (1 + annual interest rate) to the 20th power)

On the side of putting money toward repayment, the higher the interest rate, the more it increases.

0.5% interest rate: about 1.1 million yen
1% interest rate: about 1.22 million yen
1.5% interest rate: approx. 1.35 million yen
2% interest rate: approx. 1.49 million yen

On the NISA side, it is approximately 1.81 million yen if the projection is 3% per year, and approximately 2.65 million yen if it is 5% per year.

Even at a 2% interest rate, if the projection is 3% per year, the NISA side is about 320,000 yen higher

However, this is a scenario where things grow as expected. To use an analogy, repayment is like a ‘fixed interest,’ while investment is like ‘interest with the potential to grow.’

Order of consideration

Figure: Comparing fixed vs. projected (Source: National Tax Agency No. 1211-1)

When comparing, it is easier to look at things in the following order:

Interest rate (fixed): The interest on the borrowed amount decreases by the amount repaid if you make an early repayment
Investment projection (uncertain): 3% or 5% per year are just projections
Mortgage deduction: While 0.7% of the year-end balance is returned from taxes, the effective interest rate decreases (National Tax Agency No. 1211-1). For those eligible for the deduction, the ‘predictable yield’ of repayment is lower by that amount

For example, if the interest rate is 1.5% and you can use the full deduction, you could view the effective interest rate during the deduction period as approximately 0.8%. However, since the deduction is determined by the annual limit and the amount of tax paid, you need to check your own withholding tax slip and deduction amount.

What happens if the projection is wrong?

Figure: Difference in years when projections are wrong (Hypothetical calculation. Source: Calculated by myself)

1% interest rate / 3% projection: NISA side is about 590,000 yen higher
2% interest rate / 3% projection: NISA side is about 320,000 yen higher
If the investment return is 0% per year, it is about 490,000 yen less than a 2% interest rate repayment
If the projection and interest rate are the same, there is no difference in amount, and the only difference is in the outlook

The answer flips depending on whether the projection is correct

That is what it means.

Honestly writing about the ‘weaknesses of this data’

The 3% and 5% annual rates are hypothetical assumptions. Historical data shows that it does not increase every year, and there are negative years. This article does not forecast future returns.
I wrote that the results of repayment are fixed, but in reality, the reduction of cash on hand due to early repayment is also one of the risks. Funds to prepare for sudden expenses must be considered separately.
For those with variable interest rates, the repayment yield changes when interest rates change. This article was calculated using a fixed interest rate.
There are costs not included in the calculation, such as early repayment fees and changes to conditions for group credit life insurance.
The mortgage deduction period and limit vary depending on the year you moved in and the type of housing. Here, I only touched upon the National Tax Agency’s guidance (new construction, 0.7%).

Thought Log (Perspective of a Researcher)

In research, if you only look at the ‘average,’ you overlook what happens when things go off-track. The 3% and 5% annual rates are also stories of ‘averages’ smoothed over 20 years.

Also, when comparing something fixed with something uncertain, it is important to look at not just the ‘expected value’ but also ‘what happens if things go off-track.’ (The point is: don’t decide based on the average alone.)

Summary

In a hypothetical calculation of 1 million yen over 20 years, repayment at a 2% interest rate is about 1.49 million yen, while NISA at 3% annually is about 1.81 million yen.
If things go as expected, the difference is about 320,000 yen. However, if the return is 0% per year, repayment is higher.
It varies depending on the presence of deductions, the type of interest rate, and available cash. Verify with your own numbers.

✅ To-do list you can start today

[ ] Check your interest rate and remaining period using your repayment schedule or loan statement.
[ ] Check the amount of your mortgage deduction using your withholding tax slip or deduction certificate.
[ ] Try calculating ‘1 million yen × (1 + interest rate) to the power of the remaining years’ using your own interest rate.

Finally

Thank you for reading to the end!

This article is one of the entries in the magazine ‘A Researcher’s Gentle Explanation.’ I am publishing 10 articles a day on the basics of investment and money.

The person writing this note is → Self-introduction | A 27-year-old researcher and salaryman verifying “common stories” with papers and data

Check this out next as well 👉 Which is better for investment dates, the beginning or end of the month? The difference is 0.18% over 38 years

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References

*This article is for informational purposes only and does not recommend the buying or selling of specific stocks or financial products. The figures stated are based on data at the time of writing and do not guarantee future results. Investment involves risk, and the principal is not guaranteed. Please make investment decisions at your own responsibility.