Following the Bank of Japan's decision to raise its policy rate to 1.25% on 18 September, the author reviews the trend in the interest rate on his variable-rate mortgage and its potential impact on future repayments based on his own calculations.
My mortgage switched to a variable rate in May 2024. The initial rate was 0.97%, while the posted rate was 2.47%. The rate subsequently changed in line with the Bank of Japan's policy rate decisions, reaching 1.12% from January to June 2025, 1.37% from July 2025 to June 2026, and 1.72% from July to December 2026. A further increase is expected, reflecting both the rate hike in June 2025 and the latest hike.
A simple simulation based on the mortgage repayment terms shows that, for a ¥10 million loan repaid over 35 years, the equal monthly principal-and-interest payment would be ¥28,088. Initially, interest would account for a relatively small share of the payment, with a larger proportion allocated to principal repayment, but from the 43rd payment onward, interest payments could exceed principal repayments.
If the repayment term were extended to 50 years, the monthly payment would fall to ¥21,040. However, from the 19th payment onward, interest payments would exceed principal repayments, and from the 43rd payment onward, more than 80% of each payment is expected to go toward interest. If the pace of rate increases accelerates, unpaid interest could arise, potentially slowing the reduction in the outstanding loan balance.