Episode 5: How much interest rate can your mortgage handle? A repayment simulation to protect your household budget

What will happen to my life if mortgage interest rates rise?
How much will my monthly repayment amount increase?
Will I be able to continue making repayments without difficulty on my current income?
Even if you have these questions, many people do not know exactly what they should check.
News reports cover interest rate movements, and various opinions about mortgages are flying around.
“Variable interest rates are dangerous.”
“You should switch to a fixed interest rate while you can.”
“You should hurry to make early repayments.”
The more information you gather, the more confused you might become.
However, when thinking about your mortgage, the first thing you need to do is not follow someone else’s opinion.
It is to understand how your mortgage will be affected by changes in interest rates.
For example, the necessary preparations differ between a household that has enough room in its budget even if interest rates rise, and a household that is barely making ends meet every month.
Even if you have borrowed the same amount, the actions you should take will change depending on your income, savings, family structure, and future expenses.
That is why it is important to think using your own numbers rather than judging based only on general talk about interest rates.
In this article, we will organize in order how to estimate your mortgage repayment amount, how to check the impact on your household budget, and exercises to help you think about future countermeasures.
When you finish reading, we aim for you to understand at least the following three things.

• To what extent could the repayment amount change if interest rates change?

• How much room is there in your household budget?

• What should you check and what countermeasures should you consider in the future?

You do not need difficult financial knowledge.
Let’s start by knowing your current situation.

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Chapter 1 | The mortgage numbers you want to check first
Before starting the simulation, let’s first check your current mortgage.
You need the following information.
Check items
Entry field
Current outstanding balance
＿＿＿＿ ten thousand yen
Remaining repayment period
＿＿＿＿ years
Current applicable interest rate
Annual ＿＿＿＿％
Interest rate type
Variable / Fixed period selection / Fixed for the entire period
Monthly repayment amount
＿＿＿＿ yen
Bonus repayment
Yes / No
Repayment method
Equal principal and interest / Equal principal / Other
These numbers can sometimes be checked via your financial institution’s internet service, repayment schedule, or contract documents.
If there are items you do not understand, you may inquire with your financial institution.
What is important here is not the amount you borrowed initially, butchecking your current outstanding balance and remaining repayment period.
For example, even for someone who initially borrowed 35 million yen, if they have already been repaying for 10 years, the current outstanding balance should be less than 35 million yen.
When estimating the impact of an interest rate hike, you need to use your current situation as a starting point.
Also, if you are using a variable interest rate, you should check not only the current applicable interest rate but also the mechanism by which interest rates and repayment amounts are reviewed.
This is because the actual change in repayment amount differs depending on the contract conditions.
It is enough if you can do this much for now
You do not need to grasp all items perfectly from the beginning.
First, try checking at least these three things.

1. Current outstanding balance

2. Remaining repayment period

3. Current applicable interest rate

If you know these three things, you have a starting point for comparing repayment amounts based on different interest rates.
Now, let’s think using concrete numbers.

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Chapter 2 | How much will the repayment amount change if interest rates rise?
Here, we will simulate using a model case.
The conditions for this time are as follows.
Model case

• Current outstanding balance: 25 million yen

• Remaining repayment period: 25 years

• Repayment method: Equal principal and interest repayment

• Bonus repayment: None

• Miscellaneous expenses, etc.: Not included

We assume a case where the current outstanding balance is 25 million yen and it will be repaid over the remaining 25 years.
How much will the monthly repayment amount change if the interest rate is different?
The following is an estimate assuming that each interest rate will not change at all in the future.
Assumed interest rate
Monthly repayment amount
Annual 0.5%
Approx. 89,000 yen
Annual 1.0%
Approx. 94,200 yen
Annual 1.5%
Approx. 100,000 yen
Annual 2.0%
Approx. 106,000 yen
Annual 3.0%
Approx. 119,000 yen
※ This is an approximate value calculated as equal principal and interest repayment. It does not include miscellaneous expenses or additional interest rates for group credit life insurance. It may differ from the actual repayment amount or contract conditions of financial institutions.
Looking at this table, you can see that there is a difference in the repayment amount depending on the interest rate.
For example, comparing 0.5% per year and 1.5% per year, there is a difference of about 11,000 yen in the monthly repayment amount.
Annually, it is about 132,000 yen.
If there is not much room in your monthly household budget, this difference might not be small at all.
On the other hand, for a household that has enough room in its monthly income and expenditure, it might be easier to handle the same difference.
In other words, it is important not just to look at the interest rate number, but whether the household budget can absorb that burden.
However, there is one thing to note here.
This table calculates the repayment amount at different interest rates based on the current outstanding balance.
It does not conclude that if the interest rate rises from 0.5% to 1.5% on an actual variable interest rate mortgage, the repayment amount will increase by exactly about 11,000 yen.
In reality, the change in repayment amount differs depending on the timing of interest rate reviews and the rules for reviewing repayment amounts.
The purpose here is to understand how much the repayment burden can change due to differences in interest rates.

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Chapter 3 | How much can your household budget withstand each month?
This is where we get to the most important part of this simulation.
Knowing that your mortgage payments might increase is not enough to know how you should act.
Next, we want to check the flexibility in your household budget.
For example, let’s consider the following two households.
Both have a monthly take-home income of 350,000 yen.
Let’s also assume the mortgage payment is 90,000 yen.
However, their expenses other than the mortgage differ.
Person A’s Household
Item
Monthly Amount
Take-home income
350,000 yen
Mortgage
90,000 yen
Other living expenses
200,000 yen
Remaining money
60,000 yen
Person B’s Household
Item
Monthly Amount
Take-home income
350,000 yen
Mortgage
90,000 yen
Other living expenses
240,000 yen
Remaining money
20,000 yen
※This is a hypothetical household example set for explanation purposes. Annual expenses, etc., must be considered separately.
Person A has 60,000 yen left each month, and Person B has 20,000 yen left.
Now, let’s consider what happens if the mortgage burden increases.
Monthly increase in burden
Person A’s remaining amount
Person B’s remaining amount
No increase
60,000 yen
20,000 yen
5,000 yen increase
55,000 yen
15,000 yen
10,000 yen increase
50,000 yen
10,000 yen
20,000 yen increase
40,000 yen
0 yen
This table is a simple example showing how the remaining household balance changes when the monthly mortgage burden increases due to factors like rising interest rates.
It does not predict that the actual repayment amount of a variable-rate mortgage will change in this way.
Even so, it shows that how you respond to an increased burden depends on how much flexibility you have in your household budget.
In Person B’s case, if the monthly burden increases by 20,000 yen, the balance will be almost zero unless other expenses are changed.
If an unexpected expense like a car breakdown or medical costs occurs, you might need to dip into your savings.
On the other hand, Person A is calculated to have 40,000 yen left each month.
Of course, Person A may also have future needs such as education expenses or home repair costs.
Therefore, you cannot judge that you are safe just by looking at the remaining amount.
The important thing is to grasp your monthly cash flow and check the flexibility of your household budget while also considering future expenses.
Let’s apply this to your own household budget
Now, stop for a moment and try writing down your own numbers.
Item
Monthly Amount
Take-home income
＿＿＿＿ yen
Mortgage repayment amount
＿＿＿＿ yen
Other living expenses
＿＿＿＿ yen
Monthly savings amount
＿＿＿＿ yen
Other regular expenses
＿＿＿＿ yen
Regular expenses here include annual insurance premiums, vehicle inspection costs, and savings for home repairs, etc.
Next, assuming that expenses other than the mortgage cannot be easily reduced, let’s think about your household budget if the repayment burden increases.
If the burden increases by 5,000 yen per month, would you be able to handle it?
What about 10,000 yen per month?
If it’s 20,000 yen per month, would you need to review anything?
The amounts set here are not predictions of interest rate hikes.
They are merely assumptions to check how much change your household budget can handle.
The answer to this question will be a clue to thinking about future measures.

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Chapter 4 | Points to consider when thinking about ‘what interest rate you can withstand’
Having read this far, some people might feel, ‘My household budget would be fine even if the interest rate reached 2%.’
Conversely, others might feel, ‘I don’t have much flexibility even at the current interest rate.’
In either case, there is something you should check.
That is, do not decide the interest rate your household can withstand based on a single number.
This is because the actual repayment amount when mortgage interest rates change varies depending on the contract terms.
For example, some variable-rate mortgages have a mechanism where the monthly repayment amount does not change for a certain period even if the interest rate is revised.
Also, some products have rules that limit the increase amount when repayment amounts are revised.
On the other hand, there are mortgages where such rules do not apply.
Therefore, a simple repayment simulation may not accurately capture the actual trend of repayment amounts.
Furthermore, even if the repayment amount does not increase immediately, the proportion of interest may increase, and the principal may decrease more slowly.
Also, factors other than interest rates affect household finances.

If these changes overlap, your household finances could become tight even if interest rates do not change.
Conversely, your household budget might become more flexible if your income increases or your expenses decrease.
That is why you cannot judge uniformly that ‘it is dangerous if the interest rate reaches X%.’
What we want to check in this simulation is not an accurate future prediction, but how much flexibility your household budget has.
And if you find that your flexibility is low, it is important to consider countermeasures early.

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Chapter 5 | If you realize your household budget is tight, what should you do?
After running a simulation, some of you may feel that you have less leeway than you thought.
However, there is no need to be more anxious than necessary.
Once you understand your current situation, you can think about countermeasures.
Here, we will organize possible actions into four categories.
Measure 1: Review your expenses
First, let’s check your household expenses.
There may be items in your monthly spending that can be reviewed.
For example, subscriptions you rarely use, communication costs, or insurance policy details.
However, it is not always the right choice to simply cancel insurance policies.
Since there is a possibility that your coverage will become insufficient, make your decision after checking the details.
Also, when reviewing expenses, it is important to organize priorities while looking at the entire household budget, rather than forcibly cutting back on necessary food, medical care, or children’s education.
Measure 2: Secure cash on hand
When you are worried about the burden of your mortgage, you might want to use your savings to pay it off early.
However, if your cash on hand decreases, you may find it difficult to respond to sudden expenses or a decrease in income.
Therefore, even if you are considering early repayment, think first about whether you can secure the funds necessary for your daily life.
How much money you should keep on hand depends on the stability of your income, your family structure, your expenses, and the coverage available to you.
It is important to think about preparations that suit your own household rather than deciding on a uniform amount.
Measure 3: Consult with your financial institution
Even if you check your current mortgage contract, there may be times when you do not know what will happen when interest rates rise.
In that case, try consulting with the financial institution where you borrowed the money.
For example, you can confirm the following:

• The timing when interest rates are reviewed

• The timing when repayment amounts are reviewed

• Rules for reviewing repayment amounts

• Estimates of repayment amounts when interest rates rise

• Options for refinancing or changing interest rate types

When consulting with a financial institution, it will be easier to proceed if you have your current outstanding loan balance and repayment schedule ready.
Note that the scope of estimates and explanations that financial institutions can provide varies.
If you want to compare multiple options, there is a way to check the conditions of financial institutions other than your current lender.
Measure 4: Consider refinancing
You may be able to change your interest rate or repayment conditions by refinancing your mortgage.
However, refinancing can involve various fees, and it is not always profitable.
You need to compare not only the interest rate of your current mortgage but also the interest rate of the new loan, the remaining repayment period, the outstanding balance, and various fees.
In addition, you will need to undergo a screening process, and your health condition may affect the enrollment conditions for group credit life insurance.
Therefore, we do not recommend deciding to refinance immediately just because interest rates have risen.
First, it is important to understand the conditions of your own mortgage and check what the advantages and disadvantages of refinancing would be.

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Chapter 6 | Practical Exercises to Review Your Mortgage
Using what we have covered so far, let’s finally organize your mortgage.
The purpose of this exercise is not to predict future interest rates.
It is to grasp your current situation and clarify what you need to check moving forward.
Try writing down the following items on paper or in a note on your smartphone.
Exercise 1: Current Mortgage Status
Current outstanding balance:
＿＿＿＿＿＿＿＿＿＿
Remaining repayment period:
＿＿＿＿＿＿＿＿＿＿
Current applicable interest rate:
＿＿＿＿＿＿＿＿＿＿
Interest rate type:
＿＿＿＿＿＿＿＿＿＿
Monthly repayment amount:
＿＿＿＿＿＿＿＿＿＿
Rules for reviewing interest rates and repayment amounts:
＿＿＿＿＿＿＿＿＿＿
Exercise 2: Monthly Household Budget
Monthly take-home income:
＿＿＿＿＿＿＿＿＿＿
Living expenses other than mortgage:
＿＿＿＿＿＿＿＿＿＿
Monthly savings amount:
＿＿＿＿＿＿＿＿＿＿
Amount set aside for annual payments and emergency expenses:
＿＿＿＿＿＿＿＿＿＿
Surplus funds that can be comfortably secured each month:
＿＿＿＿＿＿＿＿＿＿
It is important here to consider money set aside for annual expenses and emergency costs.
Simply subtracting monthly expenses from income may not always reveal your true surplus funds.
Exercise 3: Checking the Impact of Increased Burdens
Next, assuming that expenses other than your mortgage remain unchanged, consider what happens if your monthly burden increases.
Assumed increase in burden
Impact on household budget
5,000 yen per month
＿＿＿＿＿＿＿＿
10,000 yen per month
＿＿＿＿＿＿＿＿
20,000 yen per month
＿＿＿＿＿＿＿＿
For each case, try answering the following questions.

• Will I be able to continue my monthly savings?

• Will I be able to secure planned education expenses and the like?

• Will I be able to handle sudden expenses?

• Will I need to review my spending?

The amounts here are assumptions to check your household’s financial flexibility, not predictions of interest rate hikes.
Please also check your financial institution’s estimates and contract terms regarding how your actual mortgage repayment amount will change.
Exercise 4: Things to Check Moving Forward
Finally, let’s choose one action you need to take right now.

• □ Check current outstanding balance

• □ Check rules for reviewing interest rates and repayment amounts

• □ Organize monthly expenses

• □ Consider future education and home repair expenses

• □ Request a repayment estimate from your financial institution

• □ Research the conditions for refinancing

• □ Consider the balance between early repayment and available cash

You do not need to do everything at once.
Start with what is important to you right now.
Understanding your mortgage situation and checking your household financial figures will lead to better future decisions.

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Conclusion | What matters is not predicting the future, but preparing for it
How will mortgage interest rates move in the future?
It is impossible to predict accurately.
However, you can learn about your own mortgage.
Check your outstanding loan balance.
Check your repayment period.
Understand how interest rates work.
Organize your household income and expenses.
And consider how much leeway you have if interest rates or living costs change.
These tasks are by no means flashy.
However, they are very important for living with a mortgage over the long term.
A mortgage is meant to support your family’s life.
If the repayments end up excessively restricting your current life or future options, it might be counterproductive.
That is why you should not look only at mortgage repayments, but also consider living expenses, savings, and future expenditures.
And if you find that your household budget is tight, it is important to check the situation early and consider necessary measures.
Even if you cannot predict future interest rates, you can know your current household finances and prepare for changes.
Start by organizing your mortgage figures in this workshop.
That will be the first step toward protecting your future household finances.

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Next Episode Preview
Next time, we will take up a topic that many people struggle with at least once when thinking about their mortgage.
Is refinancing your mortgage really worth it? Comparison points to avoid losses
When people hear that interest rates are rising, some may wonder if they should consider refinancing.
However, refinancing has not only benefits but also points you should check, such as various fees and the screening process.
Next time, we will organize what figures you should compare and in what cases careful judgment is required.
Let’s gradually increase our knowledge to make our own decisions about mortgages.