Mortgage interest rates have risen, but the repayment amount is the same? — Often overlooked points of the '5-year/125% rule'

Topics in politics and economics you should know by now | Episode 12

You received a notice that your mortgage interest rate has changed, but your monthly withdrawal amount remains the same. Is it safe to assume that ‘there is no impact on the household budget yet’?

The answer depends on the mechanism that the day the interest rate changes and the day the monthly repayment amount changes are not necessarily the same. Even if the repayment amount is kept the same, the allocation of interest and principal within it may change.

Some mortgages also undergo interest rate reviews in October. Using official documents from the Japan Housing Finance Agency and banks as of October 12, 2026, we will organize what the ‘5-year rule’ and ‘125% rule’ protect and what they do not.

1. Even if reviewed in October, the October payment amount may not change

For mortgages, there are first three points in time.

The interest rate review date is the day the interest rate is reviewed based on the criteria stipulated in the contract. The new interest rate application start date is the day when interest calculation begins at the changed rate. Furthermore, the monthly repayment amount review date may be set separately.

For example, in the guidance for mortgages currently being borrowed from MUFG Bank, it is divided as follows depending on the type of variable interest rate.

Example of the twice-a-year type: The over-the-counter interest rate is 3.375% per annum as of the October 1, 2026 review. The application starts the day after the December 2026 repayment date, and the interest rate is reflected from the January 2027 scheduled repayment.

Example of the monthly type: The over-the-counter interest rate is 3.375% per annum as of the September 1, 2026 review. The application starts the day after the October 2026 repayment date, and it is reflected from the November 2026 scheduled repayment.

Both are schedules posted on the official page as of October 12. The over-the-counter interest rate is not the actual interest rate applied to individual borrowers. The base interest rate may differ depending on the contract, and you need to check your applied interest rate on your repayment schedule. This is an example of the relevant contract at the same bank and is not a schedule common to all banks and products.

Also, ‘the interest rate is reflected’ and ‘the total withdrawal amount increases’ are different matters. This is where the following two rules come into play. MUFG Bank’s schedule and conditions by type

2. The 5-year/125% rule is not an interest rate cap

Equal principal and interest repayment is a method of calculating to keep the total repayment amount of principal and interest constant. Since there are interest rate changes with variable interest rates, it is also necessary to check the contractual rules on how to review subsequent repayment amounts. Explanation of repayment methods by the Japan Housing Finance Agency

MUFG Bank explains that for variable interest rates and equal principal and interest repayment, the repayment amount is reviewed every 5 years under the 5-year rule. Even if the interest rate changes during that time, the repayment amount is kept the same until the next review, and the breakdown of principal and interest changes.

The 125% rule is a mechanism that limits the new repayment amount to 125% of the previous repayment amount when the repayment amount increases due to a review.

For example, if the previous monthly repayment amount was 100,000 yen, the upper limit at the time of that review is calculated as 125,000 yen. However, this does not mean it will necessarily become 125,000 yen. The standard for the upper limit is the previous repayment amount, and it is not a guarantee that ‘it will only increase by up to 25% throughout your life from the repayment amount when you borrowed’.

It is important to note that this is not a rule that sets a 125% cap on the interest rate itself or the total amount of interest paid. Explanation of the bank’s 5-year/125% rule

3. Even if it remains 100,000 yen per month, the way the principal decreases will change

What happens when the repayment amount does not change? To see the mechanism, we will set only the following conditions and estimate one month’s worth on a monthly basis.

• The outstanding loan balance at the time of comparison is 30 million yen.

• The monthly repayment amount is fixed at 100,000 yen.

• Comparing the case of a 0.75% annual interest rate with a 1.00% annual interest rate.

• Interest is calculated as ‘balance × annual interest rate ÷ 12’. Bonus repayments and fees are not included.

In the case of a 0.75% annual interest rate: The interest is 30 million yen × 0.0075 ÷ 12 = 18,750 yen. Subtracting this from 100,000 yen, 81,250 yen is applied to the repayment of the principal.

In the case of a 1.00% annual interest rate: The interest is 30 million yen × 0.01 ÷ 12 = 25,000 yen. Even if you pay the same 100,000 yen, 75,000 yen is applied to the principal.

In this comparison, even though the withdrawal amount is the same, the amount reducing the principal is 6,250 yen less per month. The pace at which the debt decreases has changed.

This is a hypothetical comparison for one month with the same balance. It does not indicate current mortgage interest rates or the magnitude of future rate hikes. In reality, the balance changes every month, and interest day-count calculations and rounding methods differ by contract, so this difference cannot be applied directly to the entire repayment period.

Furthermore, if interest rates rise significantly and the interest alone exceeds the monthly repayment amount, ‘unpaid interest’ may occur, where the payment of the excess interest is deferred. This does not always occur; it depends on conditions such as interest rates, balance, and repayment amounts. Guidance from MUFG Bank also indicates that if an outstanding balance remains on the final repayment date, it must in principle be repaid in a lump sum on that same day.Conditions for unpaid interest and final repayment

4. You cannot say ‘there is a 5-year rule because it is a variable interest rate’

The existence of the rule varies by bank, product, and repayment method. According to MUFG Bank’s explanation, there is no 5-year/125% rule for principal-equal repayment. On the other hand, PayPay Bank explicitly states that it does not have both rules for its mortgage loans.PayPay Bank official FAQ

Even if there is a rule, the month in which changes are reflected is not necessarily the same. In the FAQ for Docomo SMTB Net Bank, regarding the applicable variable interest rate and principal-and-interest equal repayment, the change month after the repayment amount is reviewed based on October 1st of the 5th year after borrowing is divided by the contract date.

• Contracts up to December 17, 2025: Changes from the subsequent January scheduled repayment.

• Contracts from December 18, 2025: Changes from the subsequent December scheduled repayment.

The same FAQ also indicates that both rules are not applied when recalculating the repayment amount after a partial early repayment. You cannot determine the next withdrawal amount based solely on information like ‘5 years have passed’ or ‘I made an early repayment’.Differences based on contract date and exceptions for early repayment

The items to look at in your repayment schedule are not just the monthly repayment amount, but also the applicable interest rate, interest portion, principal portion, balance, and the next repayment amount review date.

5. Opinions are divided on household stability and the visibility of the burden

From the perspective of stabilizing monthly household finances, a mechanism where repayment amounts do not increase suddenly has significance. This is because it becomes easier to adjust for other expenses such as education costs and to secure time to prepare for the next review.

From the perspective of prioritizing the pace at which debt decreases, the fact that the withdrawal amount does not change makes it harder to see the increase in interest and the decrease in principal repayment, which is a problem. Keeping monthly payments down is not the same as eliminating the burden of rising interest rates.

This is not a comparison of whether banks with rules are good and those without are bad. When there is no rule, changes in the repayment amount appear quickly, while when there is one, monthly changes are suppressed. You need to consider that difference in conjunction with your household’s flexibility and the remaining repayment period.

A fixed-rate mortgage for the entire term is an option that reduces the risk of interest rate hikes due to changes in market interest rates after borrowing, making it easier to plan repayments. On the other hand, if market interest rates fall after borrowing, the interest rate of that contract does not automatically decrease. Also, for fixed-period selection types such as ’10-year fixed,’ you need to check the conditions after the fixed period ends.Explanation of interest rate types by the Japan Housing Finance Agency

Which type results in the lowest total burden depends on future interest rates and contract conditions. I cannot recommend refinancing to a specific product or making uniform prepayments here.

Summary: Three perspectives for making decisions

1. Distinguish between the three points in time. Check the interest rate review date, the start date for the application of the new interest rate, and the monthly repayment amount review date using your contract and repayment schedule.

2. Look inside the withdrawal amount. Even if the payment amount is the same, check if interest has increased and the reduction of the principal has slowed down. 125% is not a cap on interest rates or total repayment amounts.

3. Judge based on your own contract and household finances. Consider the presence or absence of the 5-year/125% rule, differences in contract dates, and exceptions, and think about the conditions under which you can continue repayments, including future expenses.

What is happening inside the peace of mind that ‘repayment amounts do not change’? Verifying that is the first step to connecting news about mortgages to your own decisions.

Sources and scope of verification

All relevant sections of the text were verified on October 12, 2026. Bank guidance refers to explanations regarding that specific bank, product, and contract.

Notes for readers

This article is an explanation for understanding systems and contractual mechanisms. Since interest rates and product conditions change, please prioritize your own contract, the latest repayment schedule, and guidance from your lender. Calculation examples are rough estimates showing how the mechanism works for one month and are not individual repayment plans or future forecasts. The people and documents in the header image are fictional scenes for illustrative purposes.