Why Are Some Households Unaffected by Rising Interest Rates While Others Struggle? | Urban Algorithm Premier
Decision-making criteria for structural analysis gained from this report
① Look beyond interest rates to income and savings capacity that can absorb debt
② Verify the extent to which household adjustments can be made when fixed burdens increase
③ Evaluate the speed at which external shocks translate into burdens and the capacity to absorb them as a whole
When taking out a mortgage, the first thing most people look at is the interest rate.
With a variable rate, current repayments are lower. However, if interest rates rise in the future, repayments will also increase.
With a fixed-rate mortgage for the entire term, the applicable interest rate does not change during the repayment period. In exchange, the initial interest rate is often higher than that of a variable-rate mortgage.
Therefore, discussions about mortgages often tend to become a binary choice between “variable or fixed.”
However, looking at current households as interest rate hikes have begun, something slightly strange is happening.
Even among households that chose the same variable interest rate, the way their burdens increase is completely different.
Conversely, even among those who chose a fixed interest rate, there are not a few households that have found themselves in financial distress.
If the risk level of a mortgage were determined solely by the interest rate type, why would the same interest rate hike be minor for one household and fatal for another?
Chapter 1 | The easy-to-understand common sense that “variable is dangerous, fixed is safe”
When considering a mortgage, the phrase “variable interest rates are dangerous” has intuitive persuasive power.
If interest rates rise, repayment amounts increase. A mortgage is a long-term debt in the tens of millions of yen. Even a slight difference in interest rates can have a significant impact on household finances if the repayment period is long.
On the other hand, with a fixed-rate mortgage for the entire term, you can block the path through which repayment amounts increase due to rising interest rates. It is natural that fixed rates appear safer when looking only at the risk of rising mortgage interest rates.
In fact, anxiety about rising interest rates is growing. In the October 2025 survey by the Japan Housing Finance Agency, 53.5% of variable-rate users responded that their anxiety about interest rate fluctuation risk had increased since they took out their loans.
Even so, variable interest rates are the mainstream for mortgages. 75.0% of people who used a mortgage between April and September 2025 chose a variable-rate type.
In other words, it is insufficient to explain the fact that variable interest rates are mainstream solely by saying that “people do not know the risks.”
Is this choice truly irrational?
Chapter 2 | Why were variable interest rates rational?
The background to the spread of variable interest rates is the long-lasting low-interest-rate environment.
In an environment where short-term interest rates remain low, choosing a variable interest rate makes it easier to keep monthly repayments down. In fact, the share of new variable-rate loans rose from 27.8% in fiscal 2007 to 37.3% in fiscal 2008, and expanded to 84.3% in fiscal 2023.
Using low interest rates to reduce monthly burdens was a rational choice adapted to the environment of that era.
However, that rationality had several premises.
Short-term interest rates do not rise significantly.
Low interest rates keep monthly repayments down.
And income increases during the repayment period, or at least living expenses do not surge.
The important point is that variable interest rates themselves were not inherently safe.
In an environment where “low interest rates persist for a long time,” repayment plans using variable interest rates were rational.
However, some of those premises have begun to shift.
The hike in policy interest rates has already spread to the applicable rates for variable-rate mortgages. Furthermore, while housing prices and loan amounts are rising, repayment periods are being extended to keep monthly payments down. Data from regional banks shows that over 50% of new variable-rate mortgages by value now exceed 35 years.
Low interest rates did more than just lighten the monthly burden.
They also served as a mechanism to enable larger borrowings for the same monthly payment.
However, a fact remains that cannot be explained by this alone. Even with the same variable interest rate, the way the burden increases differs, and there are households that struggle even with fixed interest rates. The choice between “variable or fixed” cannot explain this difference. The factor that truly determines the level of risk in a mortgage lies elsewhere.