FP’s estimate! “Floating-rate mortgages” to rise in October… Pitfalls of the “5-year rule” and the “125% rule

What will happen to the interest rate on the “variable rate mortgage” being repaid? ?

In October, many mortgages are expected to increase their “variable rate”. Will there be an impact on mortgages that are being repaid or not?　If so, how much?　Are you making the right assumptions?

If you answered, “I am going to wait and see because of the ‘5-year rule’ for variable rates. If you answered “yes,” you have a high level of mortgage literacy. When will your “5-year rule” end?　One year? Or three years?　Do you understand exactly how variable interest rates work, such as the “5-year rule” and the “125% rule,” which are unique to variable interest rate types?

Interest rates are now on an upward trend. If the upward trend remains unchanged, repayments will surely rise at the time the five-year rule expires. At that point, the 125% rule may be triggered and “accrued interest” may occur.

First, let’s review the “5-year rule” and the “125% rule.

These are not unified names. They are not mandated by FSA to be included in mortgage contracts, nor are they adopted by all financial institutions. In fact, Sony Bank, PayPay Bank, SBI Shinsei Bank, and others have not adopted them, hence the importance of what is in your own mortgage contract.

If you are repaying your mortgage at a variable rate, check it immediately.

Understand how variable interest rates work.

Five-year rule

The rule of reviewing the repayment amount every 5 years: The amount of repayment remains the same for 5 years regardless of interest rate fluctuations.

125% Rule

The 125% rule: When the repayment amount is reviewed in the sixth year, the new repayment amount is limited to a maximum of 1.25 times the previous amount, even if interest rates rise. However, when the repayment amount is reduced, accrued interest (accrued interest) accrues. The accrued interest is adjusted in subsequent repayment periods. The payment is not exempted.

Review” of borrowing interest rates and timing of “reflected” interest rates

At most financial institutions, mortgage rates are reviewed on April 1 and October 1 of each year based on each bank’s “Base Interest Rate”. If the review is conducted in April and October, the interest rate will be reflected in the repayment amount in July and January.

Who will be affected by the “5-year rule” this time?

The following are the cases that will be directly affected by the October interest rate hike.

• (1) New borrowers who take out a new mortgage loan and execute the loan in October.
• When the 5-year rule ends, such as when 5 or 10 years have passed since the start of repayment.

Even if you are not at a milestone of the 5-year rule, be on your guard. Even if interest rates rise, the repayment amount remains the same, but thanks to the 5-year rule, the percentage of interest payments in the repayment amount increases, and the amount allocated to principal repayment decreases.

This means that the principal amount is not decreasing, even though the monthly repayment of 100,000 yen is being made.

Many financial institutions, including major banks, use the short-term prime rate (Short-Price-Price-Plus) as an indicator for variable mortgage loans Many financial institutions raised the Short-Price-Plus in September after the Bank of Japan raised its policy rate by 0.25% at the end of July.

Mortgage rates will be affected in October. Some financial institutions have already announced their mortgage rates for October, but the major banks will announce their rates on September 30. If interest rates are revised in October, the repayment amount will be reflected in January.