Choosing a Mortgage in an Era of Rising Interest Rates: Why You Should Clarify Your Priorities If You Are Unsure

With the future of mortgage interest rates uncertain, many people are likely wondering, “Should I choose a variable or fixed interest rate?” or “How much is safe to borrow?”

In a phase of rising interest rates, simulations of repayment amounts and comparisons of interest rate types become complex, often making it harder to make a decision.

However, what is important at times like these is not relying solely on interest rate predictions.

It is about clarifying your priorities regarding what you want from your mortgage.

Three concerns to consider in an era of rising interest rates

When considering a mortgage, the following three points are of particular concern.

1. Anxiety about future increases in repayment amounts

With variable interest rates, there is a possibility that interest burdens will increase in the future due to rising interest rates.

Note that while the “5-year rule” and “125% rule” are known for variable interest rates, these are not common to all financial institutions or products. It is important to check the specific repayment rules when borrowing.

2. The possibility of not being able to borrow the desired amount

Depending on interest rates and the screening conditions of financial institutions, there are cases where you may not reach your desired loan amount.

It is important to think not only about “how much you can borrow” but also “how much you can repay without difficulty.”

3. Uncertainty about whether to choose fixed or variable

While fixed interest rates make it easier to forecast repayment amounts, variable interest rates require caution regarding future burden increases due to rising interest rates.

Since both have advantages and disadvantages, trying to decide solely on “which is more profitable” can easily lead to confusion.

That is why you should decide on your “priorities”

It is impossible to accurately predict how interest rates will move in the future.

That is precisely why it is more important to decide what you will prioritize if interest rates change, rather than focusing on the prediction itself.

For example,

• If you want to prioritize stable repayment amounts
  → Consider a fixed interest rate to avoid as much uncertainty as possible from future interest rate hikes.

• If you want to keep initial interest costs low
  → Consider a variable interest rate after confirming that your household budget has the flexibility to handle potential interest rate hikes.

• If you want to prioritize property conditions like location or size
  → Think about the overall balance, including not just the loan, but also the purchase price, living expenses, and future expenditures.

As you can see, your approach changes depending on your priorities.

You can’t make a decision if you ‘want everything’

When buying a home, it’s natural to want to satisfy every condition: ‘low interest rates,’ ‘good location,’ ‘spacious,’ ‘close to the station,’ and ‘low budget.’

However, it is not easy to find a home or a loan that meets 100% of all those criteria.

That is precisely why

‘What are your priorities?’
‘What are you willing to compromise on?’

it is important to organize these points first.

Instead of being swayed every time you see news about rising interest rates—wondering ‘Should I buy now?’ or ‘Should I choose a fixed rate?’—make decisions based on your own household finances and life plan.

Isn’t that what is most important when choosing a mortgage in an era of changing interest rate environments?

Start with ‘priorities,’ not ‘interest rates’

When choosing a mortgage, comparing interest rate types and running repayment simulations are, of course, important.

However, before that, you should think about
‘what you value most.’

Is it stable repayment amounts, the location you want to live in, the size of the home, or having extra cash on hand?

Once your priorities are clear, it becomes easier to have a framework for making decisions even when external factors like interest rates or property prices change.

Before you start looking for a home, first organize your ‘non-negotiable conditions’ and ‘conditions you can compromise on.’

Perhaps choosing a mortgage actually starts there.

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What do you prioritize in choosing a home?
What are your family’s wishes?
How will you balance your household budget?
Why not start by visualizing your own values?
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