BOJ rate policy and mortgage

[mikele3]

Anybody undertands what effect will the BOJ ending negative rate policy, yield curve control have on current mortgages interest rates?

[entdark]

For now I guess they will go from -0.1 to 0 or +0.1. Fixed rates have been increasing because they were anticipating the rate hikes.

How much they can rise the rates without blowing themselves up that's another question

Please someone else correct me if I'm wrong but the mortgage loans interest isn't directly linked to the policy rate, housing loans are linked to the short term rate primes instead. That is set at I believe is 1.47 or 1.475 so it won't be an immediate increase, but at some point if the short term rate changes then yes mortgages will go up.

[sutebayashi]

Good explainer here, albeit in Japanese:

https://www.sbiaruhi.co.jp/guide/words/ ... rime_rate/

-> The ways that variable rate mortgages and fixed rate mortgages are set differ.

I had(have) a large mortgage and didn’t feel comfortable with the risk of my monthly mortgage repayments going up in the future, so went with a fixed rate mortgage, and refinanced to a lower rate at a good time.

Reading the article, the variable rate mortgages seem more likely to be impacted by further BOJ policy rate hikes, whereas the fixed rate mortgages are more over to market interest rates on say a 10 year JGB.

As of now I don’t think the BOJ is going to stop buying a lot of JGBs, so the market rates are probably not going to rocket higher (just random consumer’s speculation).

Things may change in future, which is perhaps the most relevant observation?

I still have 2 decades of coexistence with my mortgage, and if I have to guess the direction of interest rates, I would guess that they go up further, not back down, over those next two decades.

There is probably a good argument to be made that one should go with variable and switch to fixed in future if things get wilder. But with a large mortgage, and not being a soothsayer, I myself liked to forget about this risk and think of fixed rate as an insurance policy against the interest rate risk of my long term mortgage

[captainspoke]

I don't know the actual numbers on this--just asking.

Even for variable rate mortgages, isn't it the case that your payments at first are mostly interest, and less principal? And then in the later years, when you've paid down the principal, less interest? (proportionally)

Wouldn't there be a later phase/stage in the life of a mortgage when upticks in the variable rate might have less effect than one might fear?

[RetireJapan]

I don't know the actual numbers on this--just asking.

Even for variable rate mortgages, isn't it the case that your payments at first are mostly interest, and less principal? And then in the later years, when you've paid down the principal, less interest? (proportionally)

Wouldn't there be a later phase/stage in the life of a mortgage when upticks in the variable rate might have less effect than one might fear?

Yes, but the interest rates are so low that this doesn't make as much difference as it might if they were much higher. My mortgage payment is just under 30,000 yen a month (30-year variable rate mortgage at 0.5%), and the amount going to interest goes down by something like 2 yen per month. It is currently about 3,000 yen interest, 26,000 yen principal-ish).

[mikele3]

I am glad I asked, even though I do not understand most of the explanation of how the financial system works.

I'll get it eventually.

Yesterday NHK gave a simpler summary of the effect of this policy change.
https://www3.nhk.or.jp/nhkworld/en/news ... index.html

[captainspoke]

How about this: https://www.reddit.com/r/JapanFinance/c ... _mortgage/

[mikele3]

How about this: https://www.reddit.com/r/JapanFinance/c ... _mortgage/

Excellent read! Thank you!