RetireJapan

Merry Christmas all,

First of all, I'm loving all the invaluable information that I've been reading on the forum and blog post. Thank you so much!
I've been trying to find an investing community for Japan in English for quite some time now.

I'm 32 Australian, with a Japanese wife and a 8 month old boy.
We started investing a few months ago and have been reading quite a lot over the last few months.
We bought a house in Sapporo last year due to the low interest rate and figured we'll probably be here long term and more cost effective than renting.

Our mortgage is 3100万, 35yrs @ 1.05% for 10 yrs 固定 (I know its a little high compared to today's rates but it's under my wife's name as I don't have PR yet.). We will be able to save about 150万 a year so about 3000万 in 20 years.

My questions is would it be better to pay off the loan or invest the money in stock or an index fund (for 20+ years)?

On one hand, if we paid off the loan, we get an instant reduction of the interest (around 40万 for the first year) and there's also the possibility of the interest rates going up in 10 years (or down for that matter). But on the other hand, paying off the loan doesn't grow our nest egg (which is bad), only reducing debt (which is good). I feel like we'll be wasting valuable time.

I'm leaning towards investing but we are still very new and have just learned about NISA and iDeco.
Any opinion or advise would be much appreciated.

Also, with the recent market dip/correction, I think a lot of the newer (2017~) funds have dropped to their initial opening prices so I think it might be a good time to DCA in them?

Mikeinjap

Hi Mike

Just a few thoughts off the top of my head. Paying off the mortgage is basically a personal comfort decision. What is going to make you most comfortable? Paying it off is guaranteed, the market may provide a better return but no guarantee there.

You could also split the difference, opening and funding tax-advantaged accounts (iDeCo and NISA) and paying down the loan with extra money.

Are you using the 10-year (soon to be 15-year?) mortgage interest tax credit? If so, you might want to wait until it ends to pay the mortgage down (you can put the money aside in the meantime then make a big payment once you are no longer saving on tax).

We don't know what the market is going to do, so best thing is probably to make a plan that makes sense for you medium-term and just do that regardless of what the stock market does.

Anyone else?

Thanks for your input.

I think I'm going to go with the investing route.
But I will talk things over with the wife over the new year holidays and then decide.

Unfortunately, the loan is under my wife's name so I don't think I'm eligible for the tax credit.
I do want to get my name added once I get PR at some point though.

Sounds good, Mike. Come back and ask questions if you need help thinking about investments

Very happy to see such interesting discussions on this board! Great stuff! I'd like to share my own experience with this question, and people can chime in if they have any response! My Japanese wife and I (two young kids) just sold our apartment (Osaka suburbs) and bought a house. One of my reasons for wanting to the sell the apartment was that we had about 2/3 equity in it, and it was kinda painful for me to have more than 10 million yen locked up in a property that had basically no real prospects for appreciation, and I would much rather have that money working for us in the stock market. (As an aside, we bought the apartment when it was 15 years old, what I thought was a good spot on its depreciation curve, and managed to sell it for about 20% more, 4 years later -- patience, and a strong market, I guess).

So when we bought our house we went for as large a mortgage as possible -- flat 35, at about 1.3% which is, of course, high by the standards of ridiculously low Japanese mortgage rates, but still very low when you consider the long term return on US stocks. We are just now starting to think about how to invest the money we took out of the apartment -- and I will have questions about that soon!

Regarding the original response about doing what you are comfortable with -- of course, I agree, and that's obviously a key component of financial planning. But at the same time, a person can be comfortable in their ignorance of the value of compound interest and borrowing cheap to earn a high return. Put another way, if a person's aversion to debt is strong enough it can stop looking like a preference and start looking irrational. So financial education is key, and again, I'm very thankful for the education being provided here! (And I apologize for the rant. There's Japanese family backstory that I won't go into!)

Thank you for the feedback!

We actually had our property reevaluated a year after purchase and we were quoted much higher prices (10-15%) than our original purchase price due to the good location. However, due to the high capital gains tax for selling a property held under 5 years, we decided to keep it for now and focus on investing.

Good luck with investing!

RetireJapan wrote: ↑Tue Dec 25, 2018 8:17 am
Are you using the 10-year (soon to be 15-year?) mortgage interest tax credit? If so, you might want to wait until it ends to pay the mortgage down (you can put the money aside in the meantime then make a big payment once you are no longer saving on tax).

What is the rule here again, do you have to maintain a certain amount of loan to be able to get the tax credit? If so what is the amount required?

I believe you currently get 1% of the outstanding loan as a tax credit (up to a certain limit) so the larger the outstanding loan, the larger the credit. There is no minimum.