RetireJapan

I have a question about mortgage repayment.

10 years back, I have taken a mortgage for 25 years at a rate of 0.95, which has been refinanced to 0.85.

Currently, I have around 15 years left with a rate of 0.85, however it`s a flexible rate, so there is a good chance it will increase in the near future.

I have started my investment journey just two years back, so I`m in a comfortable cash position which I`m slowly moving into investments (maxing out iDeco and Tsumitate Nisa at the moment).

I`m considering early repayment of the mortgage and wanted to confirm what things to consider in this case.

I`m leaning towards one-time lump sum payment of 1/3 or 1/2 of a mortgage to lower the principal.

What are the potential benefits of early repayment of the mortgage and what are some of the issues I should consider before going this way?

Also, in what situation would increase of monthly payments be more beneficial compared to lump sum payments?

Any help would be much appreciated.

Made a video about this: https://youtu.be/EedWDRcqBVI?si=zYr1nnu9NmLxDBJl

MBK wrote: ↑Fri Jun 07, 2024 7:23 am...
Currently, I have around 15 years left with a rate of 0.85, however it`s a flexible rate, so there is a good chance it will increase in the near future.
...

You're sure about that?

captainspoke wrote: ↑Fri Jun 07, 2024 11:33 am

MBK wrote: ↑Fri Jun 07, 2024 7:23 am...
Currently, I have around 15 years left with a rate of 0.85, however it`s a flexible rate, so there is a good chance it will increase in the near future.
...

You're sure about that?

Over 30 years of rock bottom interest rates, I don't think they are going anywhere upwards anytime soon. Indeed, it is the main reason for cheap yen now.

There is definitely (certainly) a chance (possibility) that the BOJ hikes its policy interest rate further than where it is now, at zero.

And, I haven’t been following closely in recent weeks but I saw talk of the BOJ reducing the amount of government debt that the it holds too, which would allow for long term market interest rates to rise too (apparently the 10y JGB rate cracked 1.0% the other day).

Interest rate traders and mortgage experts will have stronger ideas about it than I do, but my lack of certainty about the future over the lengthy term of my mortgage is why I fixed my mortgage rate, and I’m glad that I never need to worry about it.

That all said, if one has a stable means of paying back the mortgage, then the lower variable rates do look attractive, and I definitely would wager that long term investments would do better than the rate on a variable rate mortgage. That’s not a certainty though. I didn’t take the risk with my mortgage, which felt so huge at the start.

captainspoke wrote: ↑Fri Jun 07, 2024 11:33 am

MBK wrote: ↑Fri Jun 07, 2024 7:23 am...
Currently, I have around 15 years left with a rate of 0.85, however it`s a flexible rate, so there is a good chance it will increase in the near future.
...

You're sure about that?

It is certainly consensus in the markets that they BoJ is going to continue raising rates. Nobody knows for sure except Ueda-san but one or two more hikes to the policy rate this year would not be surprising.

MBK wrote: ↑Fri Jun 07, 2024 7:23 am I have a question about mortgage repayment.

10 years back, I have taken a mortgage for 25 years at a rate of 0.95, which has been refinanced to 0.85.

Currently, I have around 15 years left with a rate of 0.85, however it`s a flexible rate, so there is a good chance it will increase in the near future.

I have started my investment journey just two years back, so I`m in a comfortable cash position which I`m slowly moving into investments (maxing out iDeco and Tsumitate Nisa at the moment).

I`m considering early repayment of the mortgage and wanted to confirm what things to consider in this case.

I`m leaning towards one-time lump sum payment of 1/3 or 1/2 of a mortgage to lower the principal.

What are the potential benefits of early repayment of the mortgage and what are some of the issues I should consider before going this way?

Also, in what situation would increase of monthly payments be more beneficial compared to lump sum payments?

Any help would be much appreciated.

Well apart from the psychological peace of mind that being mortgage-free gives, at these rock bottom almost free loans, I have rethought how I look on the debt, v the returns on my investment. At say 6% return on my investments ( and it's been crazy the past few years), minus the 1% ( just for a simple round number) we decided to stop overpaying and put it into the NISA. We realized we could grow the money, and the growth would pay that mortgage. If the interest rates were going up, we could pre-empt any panic, sell some of the investment, and pay off the home loan. If we gave all our money to the bank, we realized we'd lose out on the growth. We also did the math on our college loans. The interest rates were so much lower than on the investment returns, we took out the student loan, and left the investment to grow. Thankfully it has been worth it. But peace of mind is also a good thing which has an intangible value.