How to Determine an 'Affordable Repayment Amount' During a Period of Rising Interest Rates

Now is the time, as interest rates rise. Planning your home budget based on an ‘affordable repayment amount’ rather than the ‘maximum loan amount’.

Hello, I’m Kazu. I am in my 19th year of working in sales for custom-built homes at a major housing company listed on the Prime Market of the Tokyo Stock Exchange. Recently, almost every meeting starts with the topic of ‘interest rates.’ I hear anxious questions like, ‘Is it okay to build now?’ or ‘Should I wait a little longer?’ almost every week. Today, I will honestly summarize the approach I use in actual financial planning, including both the pros and cons. Please note that the figures in this article were confirmed as of October 19, 2026.

What is the current state of interest rates?

First, let’s organize the facts. – On September 18, 2026, the Bank of Japan raised its policy interest rate to approximately 1.25%. – The minimum interest rate for the long-term fixed-rate mortgage ‘Flat 35’ in October 2026 (for repayment periods of 21–35 years) is 3.83%, which is 0.37 percentage points higher than the previous month and is reported to be the highest level since the current system was introduced in October 2017. Revisions to benchmark interest rates have also been announced by some banks for variable-rate mortgages. Since the timing of when these changes are reflected in repayment amounts varies by bank and contract type, those who have already taken out a loan should check their contract details. The important thing here is that no one, including myself, can accurately predict future interest rates. That is why I believe it is much more realistic to ‘plan so that you won’t be in trouble even if rates rise’ rather than trying to ‘guess the outcome.’

The ‘maximum loan amount’ and the ‘affordable repayment amount’ are different

The ‘maximum loan amount’ that appears during a financial institution’s screening is merely an upper limit from the lender’s perspective. Even with the same annual income, your financial flexibility will differ significantly based on the number of children, whether you own a car, your educational philosophy, and whether both partners continue to work. I have heard many comments like this in the field: ‘When I built based on the amount I was approved for, I could manage the monthly payments. But I had to cut back on travel and lessons.’ Even if you get a house, it is counterproductive if your life becomes cramped. The first question I ask in financial planning is not about annual income, but ‘How much are you able to put into savings every month right now?’

Three steps to determine an affordable repayment amount

Step 1: Calculate your current housing costs + savings amount

Add the amount you are able to save each month without strain to your current rent. This serves as a benchmark for ‘housing costs you can afford without disrupting your current lifestyle.’ However, since owning a home involves property taxes and maintenance costs, you should subtract those amounts from your calculations.

Step 2: Simulate what happens if interest rates rise

If you choose a variable interest rate, be sure to simulate not only the ‘current interest rate’ but also ‘what the monthly payment will be if interest rates rise.’ If you can afford that amount, you can rest easy; if it seems difficult, you can decide to reconsider the loan amount or consider a fixed-rate mortgage. Fixed-rate mortgages also have pros and cons. While they make planning easier because the repayment amount remains constant until the end, the interest rates are currently higher than those for variable-rate mortgages. Which one is correct depends on your household finances and personality, so please consult with your financial institution before making a final decision.

Step 3: Create a timeline of future expenses

List your children’s school entrance, car replacements, and maintenance for the home’s exterior walls and equipment. When you lay these out on a timeline, you can see when ‘expenses will overlap.’ Since a mortgage is a long-term commitment, it is important to imagine your household finances 10 or 20 years into the future as well.

Consider subsidies and tax breaks as ‘bonuses’

Subsidies and tax breaks are also essential when talking about home-building finances. The subsidy for new construction, the ‘Mirai Eco Housing 2026 Project,’ has varying subsidy amounts depending on the home’s energy-saving performance and household conditions. For example, GX-oriented housing receives 1.1 million yen per unit (1.25 million yen in cold regions 1–4), and long-term quality housing is eligible for 750,000 yen (800,000 yen in the same regions) for child-rearing or young married households. Reservations for grant applications must be made by November 16 at the latest, and applications must be submitted by December 31; they will close as soon as the budget limit is reached. The mortgage tax deduction has been extended until December 31, 2030, under the 2026 tax reform, with a deduction rate of 0.7% and a deduction period of 13 years for new construction. The maximum loan amount varies depending on the home’s energy-saving performance and the household. However, I want to be honest with you here: subsidies may not be available depending on the budget and conditions, and the actual amount returned through tax deductions varies based on your income and loan amount. Therefore, I recommend thinking of subsidies and tax breaks as ‘bonuses you can use if available, but planning on the assumption that you won’t have them.’ You can use whatever you receive for landscaping, furniture, or future early loan repayments. Please check with experts such as tax offices or tax accountants for individual tax judgments.

How to think about ‘building now or waiting’

Finally, regarding the most common question. The advantage of waiting is that your savings can increase and you have more time to gather information. On the other hand, no one knows what will happen to interest rates or construction costs in the future, and life events like your child’s school entrance won’t wait for you. What I recommend is not deciding ‘whether to wait or build now’ first, but rather calculating your ‘affordable repayment amount.’ If you can achieve the life your family wants with that amount, then you should move forward; if it seems difficult, you can think together about what to prioritize and what to cut. Just by changing the order, your hesitation will be significantly reduced.

Conclusion

It is natural to feel anxious about building a home, especially given the large amount of money involved. That is why I want to share not only the pros but also the cons, and not just the good things but also the ‘I wish I had done this differently’ moments, without hiding anything. If you are someone who thinks, ‘I had a financial plan made by another company, but is this okay?’ or ‘I don’t know where to start,’ it is perfectly fine to come in with the mindset of just wanting to hear some advice. *I am a sales representative for a housing company. This article is for informational purposes and does not recommend any specific product. *Figures are as of October 19, 2026. Sources: Japan Housing Finance Agency, NHK News, Ministry of Land, Infrastructure, Transport and Tourism ‘Mirai Eco Housing 2026 Project’ official website, Ministry of Finance ‘2026 Tax Reform: Review of Mortgage Deduction’ materials.