One thing you cannot avoid when buying a home is a “housing loan.” By understanding in advance where to borrow, which interest rate type to choose, and how much the monthly repayment will be, you can build a financing plan without overextending yourself. In this article, we clearly explain the basic knowledge of housing loans and model cases.
Where can you get a housing loan? What are the types and features of financial institutions?
There are three main types of institutions that handle housing loans.
- Major banks, regional banks, credit unions, and similar institutions (physical branches)：Face-to-face support makes scheduling and process management easier. If it is your main bank, you may also qualify for preferential interest rates in some cases
- Online banks：The biggest advantage is lower interest rates. Because all procedures are completed online, document screening tends to be stricter
- Employer loan programs：These may offer benefits such as no need for a joint guarantor. However, in today’s extremely low interest rate environment, the benefit from rate differences is limited
How do housing loan interest rate types and market levels differ?
There are three types of housing loan interest rates.
- Variable interest rate：The interest rate is reviewed every six months. This is the lowest-rate option, and when combined with an online bank it can reach the most competitive level
- Fixed-term interest rate：The interest rate is fixed for a certain period, such as 5 or 10 years, and then selected again after that period ends. Be aware of the risk of rate changes once the fixed period is over
- Full-term fixed interest rate (Flat 35)：The interest rate does not change throughout the repayment period. Because the monthly repayment amount is fixed, it is easier to plan your life finances
Simulating repayment amounts with a model case
An average case for housing loan users based on 2017 data from Japan’s Ministry of Land, Infrastructure, Transport and Tourism:
- Age：35, annual income：6 million yen, down payment：8 million yen, repayment period：30 years (fully repaid by age 65)
- Property：A newly built detached house priced at 38 million yen (including 1 million yen in incidental costs and 1 million yen in bank-related expenses)
- Loan amount：32 million yen, with 1% interest the monthly repayment is about 80,000 yen + bonus payments of about 140,000 yen
It is often said that keeping the total loan amount within five times your annual income is a safe guideline. In this case, it is about 5.3 times annual income, but still within an acceptable range.
Make use of the housing loan tax deduction
The housing loan tax deduction is a system that allows a certain percentage of your loan balance to be deducted from income tax and resident tax. If interest rates are around 1%, it may be more advantageous during the deduction period to make full use of the deduction rather than make early repayments. Because the detailed requirements of the system, such as building age, floor area, and income limits, can change by fiscal year, check the latest information with the tax office or your real estate company.
Frequently Asked Questions (FAQ)
Q. Which financial institution is best for a housing loan?
A. If you prioritize lower interest rates, online banks are advantageous. If you value in-person support, regional banks or credit unions may be a better fit. It is important to obtain pre-screening from multiple financial institutions and compare interest rates, fees, and terms.
Q. Should I choose a variable or fixed interest rate?
A. Variable interest rates are lower, but they carry the risk of future rate increases. A fixed interest rate (Flat 35) keeps your monthly repayment unchanged, making household planning easier. Decide based on your repayment period, risk tolerance, and outlook on interest rate trends.
Q. How much can I borrow with a housing loan?
A. A common benchmark is five to seven times your annual income. However, another important criterion is whether the monthly repayment stays within 25% to 30% of your take-home income.
Q. What is the housing loan tax deduction?
A. It is a tax relief system that allows a certain percentage of your housing loan balance to be deducted from income tax and resident tax. Because the deduction rate and deduction period vary by fiscal year, be sure to confirm the latest rules before purchasing.
Q. When should I start making early repayments?
A. During the period when the housing loan tax deduction applies, keeping the loan balance in place may maximize the deduction amount. A common strategy is to consider early repayment with surplus funds after the deduction period ends.
