Dealing with a home loan.

[Inakappe]

Hey guys,
I am wondering about home loans and whether it is better to pay them off as soon as possible or wait and take advantage of the tax deduction.
As I'm sure you know, the home loan tax deduction allows us to deduct 1% of our remaining home loans from our income tax each year for up tp 10 years. (Unfortunately I bought my house in 2018 because if I'd bought it between October 2019 and Dec 2022 I would get the three year extension).

Anyway, in my case I got a home loan for 10,000,000yen in 2018 at a great interest rate of just 0.58%. My loan is for 20 years, about 44,000yen a month and have about 8,450,000yen remaining.

But I was wondering if I should start paying it off quicker (I'll be around 60 when it's paid off if I pay just my monthly payments), wait until the 10 years is over and the tax benefits are finished, or just pay as normal and put any other extra savings into investing etc (I am enrolled in NISA).

There may also be other things that I'm not thinking of.
Any advice or guidance for us home-owners would be appreciated!

[OkiBum]

Pay the minimum amount till you can take advantage of the tax break.

After that, if you value peace of mind over returns, pay off the loan as fast as you can.

If I were you, I would continue making the normal payments because of the low interest rates and use the excess cash to invest in low cost mutual funds as they are more than likely to provide a greater growth than 0.58%

[Tkydon]

I concurr with Okibum

If you have the money in mutual funds making maybe 5%, why would you take that out to pay down a 0.5% loan?

Pay off Credit Card / High Interest Rate Debt - Yes.
Keep the Home Loan right to the end, and invest the money for a greater return.
The other benefit is the Life Insurance - If you die, the loan is paid off for your heirs, and you still have the money in the bank...

[Bubblegun]

I’d keep paying the minimum, and put the rest into a NISA and an IDECO.
You’d get the city tax reduction from the IDECO, and the NISA could also grow way more that 0.58%, and could be used to slam down a huge chunk on the mortgage
Later, or could be an emergency fund for the house, health , flights back home, or used to fund your retirement.
If there are kids, start a NISA for a minimal amount.
I realized this with my home loan in the UK. I was rushing to pay off the loan, but did some research
On debt, and how it can actually be advantageous. This seems to be one of those times.
The richest man in Babylon was a good read on that.
Anyway, I can make more by letting the minimum pay off the loan, while the savings have grown at about 7%.

[Inakappe]

Awesome guys.
Thanks for the advice. It really helped to clarify the situation for me.
Ideco and NISA sorted (for me and my kid), so extra money can go into NISA and/or emergency funds etc.
I forgot to factor in the insurance part of it where if I die the rest of the loan is written off. All of your advice makes sense.
Thanks again

[TokyoSophia]

I've been listening to Dave Ramsey's podcasts recently and he recommends first putting 15% of your take home income into retirement savings (IDECO, NISA and then taxable accounts) and then using any extra over that to pay off your mortgage. So, basically it's a combination of the two.

[bryanc]

out of interest-where did you get such a great loan at?

i was in the same boat-rather than paying back my home loan and invested it..
however didnt really make much money so have now paid off the home loan-kind of wishing i hadnt now that ive found this site!

[RetireJapan]

I've been listening to Dave Ramsey's podcasts recently and he recommends first putting 15% of your take home income into retirement savings (IDECO, NISA and then taxable accounts) and then using any extra over that to pay off your mortgage. So, basically it's a combination of the two.

One thing that might make a difference: Ramsay is working in the US context, where mortgages are much more expensive.

But a case can certainly be made for both sides of this argument.

[zeroshiki]

I think in Japan, rates are low enough that the only reason to pay off your mortgage early is for the peace of mind. I honestly probably would do it myself but from a pure number crunching perspective it doesn't make a lot of sense.

[RetireJapan]

I think in Japan, rates are low enough that the only reason to pay off your mortgage early is for the peace of mind. I honestly probably would do it myself but from a pure number crunching perspective it doesn't make a lot of sense.

I started overpaying a couple of years ago (our place was too old to qualify for the mortgage tax benefit) but after a couple of years decided to just invest that money instead. At 0.5%, I don't see a reason to pay it off if I can get 3% by investing...