RetireJapan

First time home buyer in exploration mode with very low understanding of the math behind interest rates, fixed, variable, etc.

What would be a good example of an interest rate that you'd go for? And how much of a difference does a, for example, 0.05% difference make in the long (or short?) run?

Not even sure if I'm asking the questions in the right way, but I think I know enough to start asking these types of questions...

Thank you!

(Well, I'll probably want to be part of that conversation. You know... "asking for a friend"... who has big dreams for 2025.)

solo7100 wrote: ↑Mon Nov 11, 2024 5:30 am First time home buyer in exploration mode with very low understanding of the math behind interest rates, fixed, variable, etc.

What would be a good example of an interest rate that you'd go for? And how much of a difference does a, for example, 0.05% difference make in the long (or short?) run?

Not even sure if I'm asking the questions in the right way, but I think I know enough to start asking these types of questions...

Thank you!

Have you confirmed how much you can borrow yet using any of the online calculators?

Once you have this number simple fire up a mortgage calculator, select the term (35 years, etc), and plug in the numbers from lenders your interested in borrowing from.

(Kakaku is a good source for this).

The more your borrowing, and the longer the term, the more a small change in rates mater.*

* Assuming variable rate.

In Japan variable rate mortgages are lower than fixed rate mortgages and at least until recently people seem to believe that interest rates won’t go up much in Japan, and favour variable rate mortgages. In overseas countries you can’t always even get a fixed rate 30 year mortgage.

I have a fixed rate mortgage myself at circa 1%, and I went with fixed because when I took it out the repayment was a large chunk of my salary and I didn’t want to run the risk of that chunk getting larger in the future. Time goes by though and salary can increase… at least to date I’d have done better with a variable rate mortgage, but I’ve still got some decades of repayment to go yet and who knows what actually will happen to interest rates. These days the BOJ is talking about hiking them, so maybe. I no longer care because it’s a fixed rate and so the cost doesn’t change.

More than the specific mortgage rate or type, it’s also worth thinking about what you might realistically get from your investments. Can you over the long term get better returns from investments than you are paying in interest for your mortgage? I think the answer to this question is yes, so long as you aren’t investing in only bonds or something like that for the long term. Japan interest rates might go up, but if they do go that high then if you are investing in a good chunk of overseas assets that should shield one, methinks. Early on I did some early repayments to bring down my mortgage balance, but in hindsight I’d have done better to just invest that money and pay off the mortgage as per schedule. It feels nice to see the loan balance shrinking though. I’ve paid down a third of mine now, but quit doing early repayments.

sutebayashi wrote: ↑Mon Nov 11, 2024 6:23 am Early on I did some early repayments to bring down my mortgage balance, but in hindsight I’d have done better to just invest that money and pay off the mortgage as per schedule. It feels nice to see the loan balance shrinking though. I’ve paid down a third of mine now, but quit doing early repayments.

Same here! It initially felt good to see the outstanding loan go down, but then I realised how much more I could make investing the money instead of overpaying a 0.5% mortgage...

RetireJapan wrote: ↑Mon Nov 11, 2024 6:32 am
Same here! It initially felt good to see the outstanding loan go down, but then I realised how much more I could make investing the money instead of overpaying a 0.5% mortgage...

For the sake of the comparison, would you mind telling us if this 0.5% rate is fixed or variable?

We got our home loan with an interest rate of 0.5%. It is variable, over 12 years, and they said it would be reviewed every 6 months. I was of the mind to pay off the loan asap, but with the life insurance element and the total returns possible in investing the difference, it made better sense to keep the loan. they said we can also change the loan, if its difficult, for some charge.

William wrote: ↑Mon Nov 11, 2024 8:29 am

RetireJapan wrote: ↑Mon Nov 11, 2024 6:32 am
Same here! It initially felt good to see the outstanding loan go down, but then I realised how much more I could make investing the money instead of overpaying a 0.5% mortgage...

For the sake of the comparison, would you mind telling us if this 0.5% rate is fixed or variable?

Variable. I haven't seen fixed rates much under 1% in Japan.

When I bought my house I took out a 110% mortgage fixed at 1.8% for twenty years.
I later got this reduced to 1.5% for the remaining years.