How much will your mortgage repayment increase if variable interest rates rise? – Simulations for 30 million, 40 million, and 50 million yen, plus an explanation of the 5-year …
Introduction: How much will your mortgage repayments increase from now on?
Hello, this is the Aimura Research Institute.
At a time when rising mortgage interest rates are a concern,
“I’m currently repaying with a variable interest rate, but how much will my monthly payment increase?”
“If I have 30 million yen remaining, how much will it change with a 1% interest rate hike?”
“If my repayment amount hasn’t changed yet, am I okay?”
Many people may have such questions.
This article is aimed specifically at those who are already repaying a mortgage with a variable interest rate.
Even if you hear on the news that “interest rates have risen,” it is difficult to see the impact on your own household finances just from that.
Therefore, this time, using mortgage balances of 30 million, 40 million, and 50 million yen as examples, we will specifically calculate the repayment amounts if interest rates rise.
The important thing is not to get anxious just from the news that “interest rates have risen,” but to
know in numbers “how much my monthly payment could potentially increase”
for my household.
Let’s think about mortgage interest rates by replacing the “X%” from the news with “X yen” for your own household finances.
Chapter 1: What happens to your mortgage when variable interest rates rise?
“Since the Bank of Japan raised interest rates, my mortgage repayment will increase immediately.”
You might think so, but in reality, it is not that simple.
There are several stages before a rise in variable mortgage interest rates affects your repayment amount.
The general flow is,
Bank of Japan policy interest rate
↓
Bank short-term prime rate, etc.
↓
Mortgage base interest rate
↓
Interest rate applied to you
↓
Mortgage repayment amount
is the flow.
What is important here is that the “policy interest rate” you see on the news and the “applied interest rate” on your own mortgage are not the same thing.
For mortgages, there are products where the applied interest rate is determined by subtracting a contract-specific “preferential margin” from the “base interest rate” set by the bank.
For example,
Base interest rate – Preferential margin = Applied interest rate
is the mechanism.
Furthermore, there is a time lag between the Bank of Japan raising interest rates and the applied interest rate on existing variable-rate mortgages actually increasing.
In other words,
“The Bank of Japan raised interest rates by 0.25%” does not mean “your mortgage repayment will immediately increase by 0.25%”
is not the case.
When you hear about “interest rate hikes” on the news, it is important to first check “which interest rate has risen.”
And for those paying off a mortgage, what they really want to know, more than the interest rate figure itself, is
“How much will my monthly mortgage payment increase?”
—that is, the impact on their household budget.
Chapter 2: How much will repayments increase for 30 million, 40 million, and 50 million yen?
So, how much will your monthly repayment change if interest rates rise?
For this comparison, we will standardize the conditions as follows:
-
Mortgage balance: 30 million, 40 million, 50 million yen
-
Remaining repayment period: 30 years
-
Current interest rate: 1.0% per annum
-
Equal principal and interest repayment
-
No bonus repayments
We will calculate the scenario where the interest rate changes from 1.0% per annum to 1.25% (+0.25%), 1.5% (+0.5%), and 2.0% (+1.0%).
This is not a prediction of future interest rates, but a model case for comparing changes in repayment amounts due to interest rate hikes.
For example, in the case of a balance of 30 million yen.
If the rate goes from 1.0% to 1.5% per annum, the monthly repayment increases from approximately 96,500 yen to approximately 103,500 yen.
The difference is about 7,000 yen per month, or about 84,500 yen per year.
If it rises to 2.0% per annum, it becomes approximately 110,900 yen, which is an increase of about 14,400 yen per month, or about 172,700 yen per year compared to 1.0% per annum.
With a balance of 50 million yen, if the rate goes from 1.0% to 2.0% per annum, it increases from approximately 160,800 yen to approximately 184,800 yen.
The difference is about 24,000 yen per month, or about 287,900 yen per year.
Hearing that “interest rates will rise by 1%” might not feel like such a big change at first.
However, with a mortgage, interest is charged on a balance of tens of millions of yen.
Therefore, even with the same 1% increase, the larger the loan balance, the greater the impact on your household budget.
However, there is one thing to note here.
This simulation does not mean that your actual repayment amount will become this figure starting the month after the interest rate rises.
With a variable-rate mortgage, the time when the applied interest rate rises and the time when the monthly repayment amount changes may not coincide.
The important thing is not just to look at “how many percent the interest rate has risen,” but to think about that increase in terms of “how much per month” it means for your own household budget.
Chapter 3: Even if your repayment amount hasn’t increased, is your burden actually growing?
“The interest rate has gone up, but my mortgage withdrawal amount hasn’t changed.”
If that’s the case, does it mean there is no impact yet?
Actually, that is not necessarily the case.
Variable-rate, equal principal and interest repayment mortgages may have a “5-year rule” and a “125% rule” established by financial institutions or specific products.
First, the 5-year rule is not a mechanism that fixes the interest rate for 5 years.
It is a mechanism where the monthly repayment amount remains unchanged for a certain period even if the applied interest rate rises.
However, even if the repayment amount is the same, the content changes.
If the interest rate rises, the proportion of interest in the monthly repayment amount increases, and the principal may decrease more slowly as a result.
In other words, even if the amount leaving your bank account is the same, the burden of the mortgage is not necessarily the same.
And what is relevant when reviewing the repayment amount is the 125% rule.
For example, if your previous repayment amount was 100,000 yen per month, the upper limit for the new repayment amount is
100,000 yen × 125% = 125,000 yen
.
However, this is a point that is particularly easy to misunderstand.
The 125% rule is not a system that limits interest or total repayment amounts to 125%.
It is simply a mechanism to curb sudden increases when reviewing repayment amounts.
The increased burden is not waived, but may be deferred to future repayments.
Furthermore, if interest rates rise significantly, “unpaid interest” may occur.
This is a state where the interest that should be paid each month exceeds the repayment amount, and when the interest cannot be fully paid with that month’s repayment, the unpaid interest is carried over to the following month or later.
However, unpaid interest does not necessarily occur just because interest rates rise.
Also, the 5-year rule and 125% rule are not present in all variable-rate mortgage loans.
The mechanisms differ depending on the financial institution, the product, and the repayment method.
What is important is to understand that
the 5-year rule and 125% rule are not “mechanisms to eliminate the burden of rising interest rates,” but rather “mechanisms to curb sudden increases in monthly repayment amounts”
is something you should understand.
Chapter 4: How to avoid failure by thinking “it’s fine because the repayment amount hasn’t changed”
When you hear that interest rates have risen, you might think:
“It’s fine because the repayment amount hasn’t changed”
“It’s scary, so I’ll switch to a fixed interest rate immediately”
You might think this.
However, for both, you need to be careful about making decisions before checking the numbers. is necessary.
First, you want to be careful about feeling relieved just by looking at the monthly withdrawal amount.
Therefore, what you want to check is not just the repayment amount.
Looking at these three things makes it easier to understand how much interest rate hikes are affecting your mortgage.
Another thing to be careful about is thinking of the 125% rule as a mechanism that prevents any further increase in burden.
Even with the 125% rule, the increased interest and the principal that needs to be repaid do not disappear.
Depending on the financial institution and the contract details, you may need to repay the remaining principal at the time of final repayment, so it is important not to assume that you are safe just because it is capped at 125%.
So, is it safe to switch to a fixed interest rate as soon as interest rates rise?
Fixed interest rates have the advantage of allowing you to lock in the rate for a certain period or until the loan is fully repaid, making it easier to plan your future repayment schedule.
On the other hand, if the fixed interest rate after the change is higher than your current variable interest rate, there is a possibility that your monthly repayment amount will increase at the time of the change.
If you are refinancing with another financial institution, you need to check not only the interest rate but also costs such as fees.
In other words,
it is not always correct to stay with a variable interest rate
nor is it always correct to switch to a fixed interest rate.
You cannot decide this uniformly.
The important thing is not to act immediately upon seeing news about interest rates, but to check your own applicable interest rate, balance, and remaining repayment period, and think in terms of numbers about how much your monthly payment will increase if interest rates rise further.
Chapter 5: What you can do now to prepare for rising interest rates
Just because interest rates have started to rise, it does not mean you need to immediately switch to a fixed interest rate or use your savings to make early repayments.
The first thing to do is to know the current status of your mortgage.
First, let’s check the following five items.
-
Current applicable interest rate
-
Remaining mortgage balance
-
Remaining repayment period
-
Next interest rate and repayment amount review date
-
Presence of the 5-year rule and 125% rule
Once you have confirmed these,
“What if interest rates rise by another 0.5%?”
“What if they rise by another 1%?”
we will calculate how much your monthly repayment amount will change.
Rather than the 1% interest rate hike itself, knowing how many yen your household expenses will increase per month as a result is more important.
Prepayment is a method of reducing the interest paid thereafter by paying off the principal early.
There are mainly two methods:
There are these two methods.
However, just because interest rates have risen does not mean you should put as much savings as possible into prepayments.
It is also important to keep money available for immediate use as a reserve for home repairs, education expenses, illness, or unemployment.
Additionally, if the period from the first repayment to the final repayment becomes less than 10 years due to a prepayment that shortens the term, you will generally no longer be eligible for the mortgage tax deduction. If you are currently using this, you must check before proceeding.
Regarding refinancing, do not judge based solely on low interest rates.
With a new mortgage, there may be fees and registration costs involved.
If the various costs of refinancing are greater than the amount saved by a lower interest rate, there is little point in refinancing.
The most important thing when preparing for rising interest rates is not to panic and act based on the news.
“If rates rise by another 1%, how much will my monthly payment increase? Can I still afford to pay that amount?”
Once you have calculated these figures, you can compare options such as switching to a fixed interest rate, refinancing, or making early repayments.
That is the realistic first step toward preparing for rising interest rates.
Summary
Even if variable mortgage interest rates rise, your monthly payment will not necessarily increase immediately.
However, you must be careful, as the fact that your payment amount has not changed does not mean you are unaffected by the interest rate hike.
Even with the 5-year rule and the 125% rule, the burden caused by rising interest rates does not simply disappear.
The important thing is not to assume that
“everything is fine because my payment hasn’t changed”
or that
“I must switch to a fixed interest rate immediately because rates have gone up.”
Neither should be assumed.
In this simulation, for a mortgage balance of 30 million yen with 30 years remaining, if the interest rate rises from 1.0% to 2.0% per year, the monthly payment would increase from approximately 96,500 yen to approximately 110,900 yen, an increase of approximately 14,400 yen per month and approximately 172,700 yen per year.
For a balance of 50 million yen, under the same conditions, the calculation shows an increase of approximately 24,000 yen per month and approximately 287,900 yen per year.
Of course, these figures are not a prediction of future interest rates.
Actual payment amounts vary depending on the interest rate and balance of your mortgage contract, the remaining repayment period, the 5-year rule, and other factors.
That is why the first thing you should check is
-
your current applicable interest rate.
-
Mortgage balance
-
Remaining repayment period
-
Timing of interest rate and repayment amount reviews
-
Presence of the 5-year rule and 125% rule
.
Once you have confirmed these, let’s calculate “how much our monthly repayment amount will increase if interest rates rise by another 0.5% or 1%.”
If you feel the burden is too high, compare options such as switching to a fixed interest rate, refinancing, or making early repayments.
Instead of just feeling anxious by looking at the “○% interest rate” in the news,
“calculate exactly how much it will change for your household”
down to the numbers.
Even just doing that will make it much clearer what you need to check and what kind of measures you should consider.