What interest rate is used in a housing company's financial plan?
The monthly repayment amount shown in a housing company’s financial plan (the outlook for home construction costs and repayment) is a figure calculated based on a specific interest rate. You can check what percentage is being used in the “Borrowing Interest Rate” column of the financial plan.
The reason you should look at this column first is that the interest rate in the plan is not necessarily the same as the interest rate on the day you actually borrow the money. If you stick to a plan calculated with a low interest rate, your monthly repayments will increase if the interest rate has risen by the time you borrow.
Two things to look for in the “Borrowing Interest Rate” column
When you receive a financial plan, before looking at the monthly repayment amount, check the following two things in the borrowing interest rate column.
Even if the repayment amount looks small, it is only natural that it appears small if the assumed interest rate is low. The repayment amount is a figure that must be read in conjunction with the premise of the interest rate.
It is not necessarily bad that the interest rate in the plan is low. Read it with the understanding that it is calculated on the premise that this interest rate will continue until the day you borrow.
The interest rate is determined by the day you borrow, not the day you receive the plan
For a housing loan, the interest rate used is the one on the day you borrow the money (the loan execution date), not the day you apply. Custom-built homes take time from the start of construction to handover, and interest rates can fluctuate during that period.
How much will repayments increase if interest rates rise? Let’s look at the case of borrowing 35 million yen over 35 years.
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Interest rate 1.2%: 102,096 yen per month
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When it rises by 0.25% (1.45%): 4,214 yen increase per month
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When it rises by 0.5% (1.7%): 8,531 yen increase per month
(Calculated by My Home Research Institute, assuming principal and interest equal repayment, no bonus payments, and the interest rate remains the same for the entire period. The 1.2% interest rate is an example for calculation purposes and is not the interest rate of any specific bank.)
Check at the planning stage whether you can afford to pay even if the interest rate in the financial plan rises by 0.5%. If you cannot afford it, one option is to have them provide a financial plan for a lower loan amount.
Comparing plans from several companies reveals differences in assumptions
When you receive financial plans from several companies, line up the borrowing interest rate columns. This is because the interest rate assumed can vary from company to company.
You cannot directly compare the monthly repayment amounts of plans with different assumed interest rates. If you have them recalculated using the same interest rate, you can compare them under the same conditions.
You should look at the miscellaneous expenses section in the same way. If you line up financial plans from several companies, you will see that what they include in miscellaneous expenses (such as fire insurance, ground improvement, etc.) differs from company to company.
When you receive a financial plan, try asking, “Is this plan calculated using a variable or fixed rate, and at what percentage?”
I have summarized how the monthly repayment amount increases when interest rates rise by 0.25% or 0.5%, as well as four things to do before borrowing, in this article.
My Home Research Institute Editor (Real Estate Notary / Financial Planner / Rental Real Estate Business Manager)
Writing about home building finances and contracts from the perspective of someone who does not sell houses.