Floating rate loan interest just went up!

[RetireJapan]

I got a letter from the bank I have my mortgage with yesterday -for the first time ever, the interest rate on the loan has gone up!

I originally borrowed at 0.5%

According to the letter (dated Dec 25th 2024) the interest rate has gone up by 0.15%, so the new interest rate is 0.65%

Anyone else?

[Tsumitate Wrestler]

Each bank has its own schedule for announcing rate rises, and when these rises would come into effect. It was actually written in our mortgage contract.

We just signed for .375 with Mizuho in December. {My brother abroad was convinced it was 3.75%, and I made a typo somewhere.}

The bank manager made it pretty clear his money was on a rise in 2025, but that the war between mega banks to keep rates low, might delay that a bit.

[Deep Blue]

Banks have been raising rates for a few months now. Following the BoJ ending negative interest rates last year.

The pace is uneven - not like the UK or Australia when central bank rate changes seem to be reflected same day or at least same month.

BOJ meeting next week is live, most economists predict another hike then - and if not this month, then likely in March.

[Deep Blue]

Actually Bloomberg just published a story leaked from BoJ saying it’s likely rates will go up next week unless we see a negative surprise from Trump before then.

[Wales4rugbyWC23]

Mine went up, from 1.35% to 1.5% with SMBC but my monthly repayments did not go up. I can not quite work that one out.

[Deep Blue]

Mine went up, from 1.35% to 1.5% with SMBC but my monthly repayments did not go up. I can not quite work that one out.

Did the length of the loan increase?

[patatepartie]

Anyone else?

Yep. Got a letter in November, from Prestia, that our loan was going up from 0.44 to 0.69, impacting monthly repayments, from this month.

[Wales4rugbyWC23]

Mine went up, from 1.35% to 1.5% with SMBC but my monthly repayments did not go up. I can not quite work that one out.

Did the length of the loan increase?

No, it is bizarre....

[Deep Blue]

I think I read somewhere there is a protected period in some Japanese mortgages, where the monthly repayment can’t go up (or the amount it can go up by is capped) for the first x years. The idea being to protect new homeowners in the first x years.

I never taken a mortgage with a Japanese bank so don’t know, but so seem to recall this from some reading around the industry.

Maybe someone else knows for sure?

[Deep Blue]

FWIW here is what ChatGPT gave me… seems plausible, would be great if anyone who reads Japanese better than me can check.

Yes, Japanese floating rate mortgages often include a feature called the “fixed payment system” (元利均等返済方式, genri kintō hensai hōshiki), which ensures that the monthly repayment amount remains constant over a specified period, even if the interest rate changes. However, this comes with important caveats:

Key Features:
1. Constant Monthly Payment:
• The monthly repayment amount remains unchanged for a certain period (e.g., 5 or 10 years), providing borrowers with stability.
2. Interest Adjustment Impact:
• If the interest rate rises, a larger portion of the fixed payment goes toward paying interest, and the portion going toward principal repayment decreases.
• Conversely, if the interest rate decreases, more of the fixed payment goes toward reducing the principal.
3. Payment Cap:
• Many loans have a cap on how much the monthly repayment can increase after the fixed period ends, typically around 125% of the original payment.
4. Extended Loan Term Risk:
• If interest rates rise significantly, the fixed payments may not cover the full interest owed. In such cases, the unpaid interest is added to the principal balance, potentially extending the loan term beyond the original schedule.

This feature is designed to protect borrowers from sudden increases in monthly payments due to rate fluctuations while maintaining predictability in household budgets. However, borrowers should carefully evaluate potential long-term costs if rates rise significantly.