Variable vs Fixed rate mortgage

[Ori]

I'm wondering what are everyone's latest thoughts on this topic as I'm currently choosing between the two.

Current rate for variable loan+insurance is 0.7-0.8% and fixed for 35 years is 1.52% (Flat35).
On one hand variable rate is very tempting, on other who knows what could happen in 35 years...
We can afford variable rate increasing to some extent, but who knows what will happen with my job and investments if the rate goes up and economy goes down (to my shame I don't quite understand how the system works and what could be the reasons for the rate to go up).

According to the stats 65% of Japanese go for variable rate, and lemmings cannot be wrong, right?

[Ori]

I was thinking that I could get best of both options by leveraging the refinancing in case the rates go up.
I've did some simulations with assumption that rates will go up after 10 years, and it looks like the rate of refinanced loan would have to go way up to 2.3% for it to become more expensive than the current fixed rate loan (for 3000万 loan with 元金均等返済).
Of course there is no guarantee that they won't go up earlier than that, or don't exceed 2.3%, but it looks unlikely to me.

[zeroshiki]

I watch a real estate focused financial planner on YouTube and he just assumes a 0.25% increase every 5 years for calculations sake. Even then, variable rate still comes out on top.
The flat rates are only for peace of mind (which is valuable) but there's little in the way Japan has been operating in the last 30 years to suggest that interest rates will go up exponentially.

[JapaneseMike]

I'm wondering what are everyone's latest thoughts on this topic as I'm currently choosing between the two.

Current rate for variable loan+insurance is 0.7-0.8% and fixed for 35 years is 1.52% (Flat35).
On one hand variable rate is very tempting, on other who knows what could happen in 35 years...
We can afford variable rate increasing to some extent, but who knows what will happen with my job and investments if the rate goes up and economy goes down (to my shame I don't quite understand how the system works and what could be the reasons for the rate to go up).

According to the stats 65% of Japanese go for variable rate, and lemmings cannot be wrong, right?

I can't imagine the rate in Japan increasing significantly while we're still having negative interest rates from the BoJ on interbank deposits.

Variable FTW. If (and it's a big if) it goes crazy, refinance for a fixed rate/better deal

[mighty58]

The "right" answer requires making predictions about the future, so it quickly becomes a fickle endeavour requiring many assumptions, the value of which (like the assumptions themselves) can only be guessed at.

Assuming a future with 2.3% means you're assuming LOW interest rates are sticking around - as 2.3% is not a high interest rate environment by any means. Fixed loans are meant to protect against HIGH interest rates in the future.

So if you want to bet that low interest rates are sticking around, then your best course of action is to go variable.

Choose fixed if you want to hedge the risk that a real high interest rate environment might come along in the future. You will pay extra for this "insurance", and may end up never needing it, but that's what insurance is... it only pays out if things go wrong.

Me? I chose 35 year fixed. I don't have a clue what's going to happen in the future with interest rates, and although I too am capable of making reasonable assumptions, I also know the limitations of those assumptions. I also paid extra for the 7dai insurance, which tacked another +0.2% on the interest rate, as I can't predict the future on that front either. To some, I likely come off as too conservative, or even downright stupid, but that's what I was most comfortable with when I was choosing.

[Beaglehound]

Not stupid at all to choose the fixed rate Mighty58. Can’t put a value on peace of mind when it comes to a huge commitment like a mortgage. It’s your home, if ever there is a time to be conservative it’s with that.

[Ori]

Thanks to everyone for replies, though, unsurprisingly, I'm not closer to making a decision.

I will decide after getting the final offers from banks, because there is no guarantee that they will offer their lowest variable rates after 本審査, so difference with Flat35 might not be that big in the end.
I'm also considering getting the mixed loan, i.e. one part of the loan to be on fixed rate (half I think, to make things easier), and other - variable. But not all banks offer that, so it will also depend on 本審査 results (I'm applying to multiple banks).

[RetireJapan]

I'm also considering getting the mixed loan, i.e. one part of the loan to be on fixed rate (half I think, to make things easier), and other - variable.

I always felt this was the worst of both worlds: you get the fixed (expensive) rate in the short term, when we can expect low rates, and the floating rate later, when we are less certain of what rates will be doing.

Now, if it were floating for ten years and fixed for the remainder, that would be interesting...

[Ori]

I always felt this was the worst of both worlds: you get the fixed (expensive) rate in the short term, when we can expect low rates, and the floating rate later, when we are less certain of what rates will be doing.

Now, if it were floating for ten years and fixed for the remainder, that would be interesting...

Same here. Don't understand who and why would take such loan.

However, I was talking about different type of loan - it's kind of two loans in parallel, instead of one after one another like in the above case.
The problem is to find banks which offer it, and which offer reasonable fixed rate at the same time. Most banks' rates outside of Flat35 scheme are too high to seriously consider them (though, those rates are indeed a proof that I was way too optimistic thinking that it may be possible to refinance at 2.3% rate in case rates will grow high in future).

[SARS]

FWIW, my approach with all my properties has been to fix for five years and then do my best over the five years to sock away cash/liquid investments so that should I need (i.e. should rates rise quickly) then I can pay down a significant amount of the principal after five years.