When is the mortgage interest rate decided? The year leading up to a 3.83% rate with Flat 35

*The header image is for illustrative purposes only

Hello, this is Yohaku no Kurashi.

Recently, our mortgage interest rate was finalized. It is 3.83% with Flat 35 (2.83% for the first five years due to a reduction). Since it was 1.84% a year ago when we were planning our home, that means it has more than doubled.

“Isn’t the interest rate fixed at the time you apply?”

A year ago, I somewhat thought so too. Today, I will write about when the interest rate is decided and what I was thinking as I watched the rates continue to rise over this past year. I hope this will be helpful for those who are planning to build a home.

The interest rate is decided at the time of “handover,” not at the time of “application”

The interest rate for Flat 35 is not determined by the month you apply for screening or the month you sign the contract, but rather by the interest rate in the month the loan is executed (the month of handover for custom-built homes) that is applied.

In the case of a custom-built home, the loan is executed at the time the house is completed and handed over. In other words, during the nearly year-long process of building a home—deciding on the land, finalizing the floor plan, starting construction, and so on—the interest rate remains undecided the entire time.

The money does not go into your own hands, but is used directly for payments to the construction company and for repaying bridge loans, but the interest rate for this month determines the repayment terms for the next 35 years.

In our case, the handover is at the end of October, so the October interest rate was applied.

Money during construction is paid via a “bridge loan”

Another thing you should know here is the “bridge loan.”

Since the Flat 35 loan is executed in a lump sum upon completion, you need to temporarily cover construction costs and interim payments made before that time with a separate loan. This is the bridge loan.

We used one too, and the interest rate for the bridge loan was about 4.1% (this is separate from the 35-year loan rate). Even though the period is short, I think I should have known from the start that there would be interest and fees involved.

I could only watch as the interest rates rose every month

Around October 2025, when we started planning, the Flat 35 interest rate was 1.84%.

However, entering 2026, the international situation shifted significantly, and both prices and interest rates rose in the blink of an eye. Every time I saw the monthly interest rate announcement, the numbers were higher, and honestly, I felt nothing but anxiety and despair.

“Why not just switch to another bank?” you might wonder. But we applied for loan screening at five banks at the beginning, and Flat 35 was the only one that passed. Having heard that applying for screening multiple times leaves a bad impression, I couldn’t act proactively even as interest rates were rising.

And then came the October announcement at 3.83%. It was a 0.37% increase from the previous month, a figure even reported in the news as an “all-time high.”

What we can do now, keeping a refinancing within 5 years in mind

Originally, we were scheduled to use a system that would lower the interest rate by 1% for the first 5 years, so if the rate stayed in the low 2% range, it would be in the 1% range for those 5 years. We intended to consider refinancing within that 5-year period.

The result was 2.83% for the first 5 years and 3.83% from the 6th year onwards.

Now that the interest rate has far exceeded our expectations, the one thing I don’t want to miss is the timing for refinancing. Since I am not an expert, I intend to consult with financial institutions or a financial planner when we actually take action, but as something we can do ourselves right now, we are keeping the following in mind.

1. Never delay a repayment
Refinancing also involves a screening process. I believe that keeping a clean repayment record is the best preparation.

2. Do not increase new borrowings
It is said that increasing borrowings, such as car loans or credit card installment/revolving payments, affects the screening.

3. Understand how to think about whether refinancing will pay off
Refinancing incurs costs such as handling fees and registration. Since whether it is profitable even after paying the costs depends on the difference in interest rates, the remaining loan balance, and the remaining term, I will look into how to calculate that now.

4. Caution when refinancing during the rate reduction period
If you refinance during a period when you are receiving an interest rate reduction, that reduction will be lost. I want to remember to compare it with the ‘post-reduction interest rate’ when making comparisons.

5. Check the interest rate every month
Flat 35 interest rates are announced on the official website at the beginning of every month. I have made it a habit to check every month so that I can notice immediately when they start to go down.

To those who are about to build a house

If I could tell my self from a year ago, I would want to convey these three things.

• The interest rate is decided in the ‘month of handover.’ The longer the period until completion, the greater the possibility that the interest rate will move

• Include the interest and costs of bridge loans in your initial financial plan as well

• Calculate the monthly repayment amount in case the interest rate rises at least once

You cannot do anything about interest rates yourself. However, if you understand the mechanism, I think you can at least reduce the regret of ‘not knowing’.

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The reason we chose Flat 35 and the anxiety about interest rates over this past year are written in the third episode of my home-building record.

https://note.com/yohaku_life_home/n/n943596ab95e4

My home-building records are compiled in the ‘Home-Building Record’ magazine.

https://note.com/yohaku_life_home/m/m8535c2b3b982

On Threads, I post a daily countdown until the handover. Please follow me if you’d like.

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