Should I Make Early Mortgage Repayments? I Consulted My Bank Due to Concerns Over Rising Interest Rates

I consulted my financial institution because I was worried about rising mortgage interest rates. The path my family chose instead of early repayment

Hello! I’m a point-earning salaryman!

This time, I’d like to talk about one of the issues my family is facing:
our mortgage!!

Mortgage interest rates have been rising.

Our mortgage is a variable rate loan. The current balance is approximately 29.8 million yen, and the applicable interest rate is 1.5%.

Furthermore, the interest rate is scheduled to increase to 2.0% starting in February 2027.

Considering the possibility that interest rates will continue to rise in the future, the burden of the mortgage is becoming a concern.

“Should I continue paying off the mortgage as it is?”

“Would it be better to use the money I have on hand to make an early repayment?”

To resolve these questions, I actually went to consult with my financial institution.

In this post, I would like to write about that conversation and the financial policy my wife and I decided on after discussing it.

First, I tried consulting about lowering the interest rate

The first thing I consulted about was whether it was possible to lower the interest rate on the mortgage I currently have.

If possible, I wanted the current financial institution to lower the rate for me.

Although I consulted with that in mind, what was proposed was refinancing.

If the interest rate drops due to refinancing, there is a possibility that the interest burden can be reduced.

However, refinancing a mortgage incurs various costs such as handling fees.

Even if it looks like a good deal when comparing only the interest rates, you won’t know if there is a real benefit unless you consider the various costs as well.

In this case, when considering the various costs as well, it didn’t seem like there would be a significant benefit.

Even though I went to the trouble of consulting, it wouldn’t be significantly improved by refinancing.

In that case, it seems better to think about how to pay off the current mortgage.

A difference of 2.61 million yen in the total repayment amount if I make an early repayment of 2 million yen?

The next thing I consulted about was early repayment.

The remaining mortgage balance is approximately 29.8 million yen.

The current interest rate is 1.5%, but it is scheduled to become 2.0% starting in February 2027.

So, I had them run a simulation for early repayment, assuming that future interest rates will remain at 2.0% until the loan is fully paid off.

The calculation I requested this time was not the ‘loan term reduction type,’ which shortens the repayment period, but the ‘repayment amount reduction type,’ which lowers the monthly payment.

If I were to make an early repayment of 2 million yen, how effective would it be? Calculation conditions: – From October 2026 to October 2054 – Assuming the interest rate remains at 2.0% for the entire life of the loan – Assuming an early repayment of 2 million yen in February 2027 & – No early repayment. When I had the financial institution calculate it, the result was that there would be a difference of 2.61 million yen in the total future repayment amount compared to not making an early repayment.

By putting a lump sum of 2 million yen toward repayment, I can reduce the future repayment burden.

Looking at the numbers, I felt that early repayment has a significant effect.

However, what I want to consider here is whether putting 2 million yen toward repayment is truly the best choice for our family.

If I make an early repayment, I can reduce the burden of the mortgage.

On the other hand, the cash on hand will decrease.

And our family is also continuing to invest for asset formation.

I realized that I need to think about our household finances as a whole, rather than just thinking about reducing the mortgage.

How our family uses money, discussed with my wife

After hearing the story at the financial institution, I also talked it over with my wife.

If we make an early repayment of 2 million yen, we can reduce the mortgage burden.

But once that 2 million yen is used for repayment, it cannot easily be returned to our hands.

We have children’s education expenses, and there will be times when we need large amounts of money, such as for replacing our car in the future.

Besides, our family is also continuing to build assets through investments.

While reducing the mortgage is important, it is also important to increase assets for the future.

Instead of going all-in on one or the other, we will proceed with both little by little.

In discussing this with my wife, I felt that this approach is the right fit for our family right now.

Not stopping early repayments, but striking a balance for now

By consulting with the financial institution this time, I was able to confirm concrete options regarding rising mortgage interest rates.

Lowering the interest rate was difficult, and refinancing did not seem to offer any significant benefits.

I was also able to confirm the effects of early repayment.

Based on that, our family decided not to make an early repayment of 2 million yen right now, but to continue investing while also considering early repayments with surplus funds.

This is not because I thought early repayment was meaningless.

It is because we want to increase our assets through investment while reducing our debt, which is the mortgage.

Of course, there is a risk that investments will decrease in value.

On the other hand, while early repayment has the benefit of reducing interest burdens, it also has the disadvantage of reducing cash on hand.

Precisely because both have pros and cons, our family decided to strike a balance.

In the future, if our assets grow or our household budget becomes more flexible, I would like to consider increasing the money allocated to early repayments.

For now, we will continue to build assets while also gradually reducing the burden of our mortgage.

That is the policy we intend to move forward with.

Rethinking how to use money triggered by rising interest rates

When mortgage interest rates rise, it makes me anxious.

But perhaps there is no need to move large amounts of money immediately just because of that anxiety.

Consult with a financial institution, check the numbers, and discuss it as a family.

I felt that it is important to choose a method that suits our household finances based on that.

This consultation did not solve all of our mortgage issues.

Even so, I was able to learn specific figures regarding refinancing and early repayment, and think about our future direction.

I want to continue investing while also steadily reducing our debt.

Increasing assets and reducing debt.

We will move forward with both, rather than just one or the other.

That is our family’s current policy for asset formation.

I hope this will be helpful to those who are similarly worried about rising mortgage interest rates and early repayment.

Which do you prioritize: early mortgage repayment or investing?

The form of FIRE I am aiming for from now on

Towards asset formation