The vexing “mortgage” question…fixed? Floating? Or a mix? How will “rising long-term interest rates” change things?

Variable-rate mortgages have undetermined cash flow despite long-term debt…

Long-term interest rates are rising. The Bank of Japan has been pursuing a policy of ultra-low interest rates, but this fall it changed its stance to allow rates to exceed 1%. Since the repayment amount of a mortgage loan is greatly influenced by interest rate trends, what is the best option, whether the interest rate is fixed, variable, or a mix of the two?

“Real estate properties have become more expensive recently, and a used condominium in the city center can be purchased for 70 to 80 million yen. A used condominium in the city center costs about 70-80 million yen. A used condominium in the city center costs about 70 to 80 million yen. Even if your annual household income is around 10 million yen, it will be tough. Even if your household income is around 10 million yen, it may be difficult to afford.

On the other hand, if you take out a mortgage, the repayment period is longer, such as 35 years. years, and the amount of repayment varies greatly depending on the interest rate. You have to choose a mortgage based on the interest rate.

Mitsuko Arita, a financial planner, says, “The interest rate on a variable-rate mortgage is very low, but the cash flow is not solid. She advises on home purchases, mortgages, and other money matters. Mortgages come in two types: fixed interest rates and variable interest rates, which are subject to market interest rate trends, and a combination of the two.

The issues involved in taking out a mortgage are all unfamiliar, such as the economy and interest rate levels 10 or 20 years in the future, as well as one’s own income and family situation.

Even experts who look at the economy and interest rate trends say , “With a variable-rate mortgage, interest payments may increase in the future, and you need to think about preparing for this now” (Masahiro Ichikawa, Chief Market Strategist, Sumitomo Mitsui DS Asset Management). Mr. Ichikawa also discusses the impact of mortgages on household finances as follows.

The cash flow (flow of money) is not solid even though it is a long-term debt. It is frightening when you think about it calmly.

With the possibility of interest rates rising, a mortgage with a variable interest rate makes it difficult to predict how much the interest payments will increase, exposing the borrower to interest rate risk.

■Mortgage Interest Rate Forms

Currently, variable interest rates are by far the most economical…

What types of mortgages are there, and how much difference does the interest rate level make in the amount of repayment? The level of interest rates paid on mortgages varies considerably depending on the amount borrowed, term, down payment, and other conditions, as well as on the financial institution offering the loan.

For example, let’s look at a case where 40 million yen is borrowed and repaid over 30 years. If the interest rate is fixed for the entire term, there are products that offer a surface interest rate of 1.6%, excluding other expenses, and a simple calculation shows that the total repayment amount would be approximately 4,963,000 yen and the monthly repayment amount would be approximately 164,000 yen.

On the other hand, variable interest rates are currently attractive due to their low interest rates. If the interest rate is the same for the entire term, the total repayment amount would be approximately 4,102,000 yen and the monthly repayment amount would be approximately 117,000 yen. If interest rates continue to rise and the average interest rate for the entire term is 3.0%, the total repayment amount would be approximately 5.805 million yen and the average monthly repayment amount would be approximately 211,000 yen.

What are the recent interest rates? The yield on 10-year JGBs, which is considered an indicator of long-term interest rates, rose to 0.955% at the end of October. The BOJ has been pursuing a “zero interest rate” monetary policy that has led to ultra-low interest rates, but since Kazuo Ueda took office as BOJ governor in April, the BOJ has gradually begun to modify its stance as if it would allow interest rates to rise.