This is an article that explains the mortgage loan for purchasing a house in Japan where you or your relatives live. For Japanese home loans, the applicable interest rate is calculated by subtracting the reduction amount according to the contract terms from the standard interest rate displayed at the store, so it is not possible to compare repayment terms just by looking at the low number advertised. Unlike the common view overseas of ``comparing the displayed interest rates themselves'', it is necessary to check the base interest rate, reduction amount, and conditions after the end of the period as a set. Furthermore, residential mortgage loans in Japan cannot be used for investment properties in principle, and the screening and product characteristics are different from loans for income-generating properties.
What is preferential interest rate? Two types of home loan structures and criteria for refinancing
Even if you see 0.○% per year'' ormaximum ▲○% per year'' in a mortgage loan guide, you cannot decide on a repayment plan based on those numbers alone. If you don't check from which base rate, by when, and under what conditions the applicable interest rate, which seems low, will be lowered, you may end up with a different repayment amount than expected after the fixed period ends or when refinancing.
The preferential interest rate is the amount of reduction that is deducted from the base interest rate of the home loan. In this article, we will explain the difference between full-term preferential treatment and initial period preferential treatment, how to read the comparison table, and the order in which refinancing decisions should be made. As a general rule, residential mortgage loans cannot be used for investment real estate. When it comes to financing income properties, you need to consider the product quality and screening separately.
What is preferential interest rate?
Preferential interest rate refers to the amount of reduction that is deducted from the standard interest rate (indicated over-the-counter interest rate) indicated by a financial institution according to the terms of the contract. For example, if the base interest rate is 3.125% per year and the preferential rate is -2.18% per year, the applicable interest rate is 0.945% per year. The low interest rates you see in advertisements are often the applicable interest rate, not the base interest rate itself.
The range of preferential benefits may vary depending on your workplace, property, own funds, loan period, group credit life insurance, transactions with financial institutions, etc. You may not be able to receive the "maximum preferential treatment" even under your own conditions, so please check the conditions presented after the preliminary examination and the conditions of the formal loan contract separately.
In the example of Bank of Mitsubishi UFJ in July 2026, the variable interest rate "Always preferential treatment course" is 0.945% per year, the over-the-counter interest rate is 3.125% per year, and the reduction is 2.18% per year. This is an example of one financial institution and certain conditions, and the interest rate level and preferential treatment range will change each month, product, and screening.
Difference between full period preferential treatment and initial period preferential treatment
It is easier to organize the preferential treatment system by dividing it into two main parts.
Preferential treatment throughout the period
The whole period preferential treatment method applies the same amount of reduction until the loan is paid off in full. They are often used with variable interest rates, and if the base interest rate is revised, the applicable interest rate will change, but the preferential range of ``how many percentage points will be deducted from the base rate'' remains the condition at the time of the contract.
It is suitable for people who can secure funds while keeping the initial repayment amount low while assuming that interest rates may rise in the future. It's not just the current interest rate you should look at. Calculate how your monthly repayment amount and balance will change if the base interest rate increases by 0.5% or 1.0%.
Initial period preferential treatment type
The initial period preferential treatment type is the idea that the preferential treatment range is increased only during the initial period, such as a fixed 3-year or 10-year fixed period. During the fixed period, the repayment amount can be easily read, but after the period ends, there are some products in which a smaller preferential range is applied to the base interest rate at that time.
For example, in the case of a 10-year fixed term with Bank of Mitsubishi UFJ starting in July 2026, the initial applicable interest rate is 3.35% per year. On the same page, the reduction amount after the fixed period ends is different from the initial condition. When borrowing, you need to check not only the 10-year interest rate, but also what criteria the interest rate will be based on in the 11th year and what percentage of preferential treatment will be available.
| Comparison items | Full period preferential treatment | Initial period preferential treatment |
|---|---|---|
| Preferential treatment range | As a general rule, the same range until full repayment | It is large during the initial period and may be reduced thereafter |
| Main selection situations | Want to choose a variable interest rate and maintain the preferential treatment range | Want to have a fixed repayment amount for a certain period and have a fixed outlook |
| Points to note | If the base interest rate rises, the applicable interest rate will also rise | The interest rate and preferential treatment range will change after the fixed period ends |
| Confirmation materials | Interest rate review rules, trial calculation of repayment amount | Preferential treatment range after initial termination, selectable interest rate types |
When comparing interest rates, don't decide based only on the "applicable interest rate"
When you are offered a low interest rate, you are tempted to compare only the monthly repayment amount. However, the total burden cannot be compared unless you include the loan amount, remaining term, loan fees, guarantee fees, group credit guarantee, and early repayment conditions.
A fixed-term loan is characterized by the ability to fix the repayment amount without being affected by interest rate increases. According to the July 2026 Flat 35 published by the Japan Housing Finance Agency, the most common interest rate for loans with a loan period of 21 to 35 years and a loan rate of 90% or less is 3.140% per year. Even if it seems higher than a variable interest rate, whether you find it worth it to be able to fix your future repayments depends on your household's financial capacity and the holding period.
When comparing, please arrange at least the following four items based on the same assumptions.
- Loan balance and remaining repayment period
- When the current applicable interest rate and preferential treatment range will change
- Miscellaneous expenses such as loan fees, registration fees, stamp taxes, judicial scrivener fees, etc.
- Guaranteed details of group credit, early repayment fees, and rules for reviewing repayment amount
You can't just say, ``I'll refinance because the interest rate difference is 0.3% per year.'' If the balance is small, the remaining term is short, or fees are high, the cost may exceed the interest reduction amount.
Three timings to consider refinancing
Refinancing is not just a procedure when you want to change your current preferential treatment range. This is an opportunity to review your repayment plan.
Before the fixed period ends
For the initial period preferential type, the first opportunity to compare is when you confirm the interest rate and preferential range after the fixed period ends. If you wait until just before the deadline, you may not have enough time to complete the procedures and review. It will be easier to make a decision by calculating the terms of your current financial institution and the terms of another bank with the same repayment period from about 6 months in advance.
Before household finances and work styles changed
Screening conditions and repayment capacity will change before and after changing jobs, becoming independent, taking childcare leave, or retiring. Even if you lower your repayment burden by refinancing, you may be required to notify your health status in order to newly join the group credit. Please check not only the interest rate but also whether it is the right time to complete the procedure.
When you feel that your household budget cannot absorb the rise in interest rates
If you have chosen a variable interest rate, it is more realistic to calculate the repayment amount in advance depending on the rate of increase, rather than rushing to a fixed rate after the interest rate rises. If you think of fixing as an act of deciding the upper limit of the repayment amount that households can accept, rather than an act of completely predicting future increases, it becomes easier to choose.
INA's opinion｜Read the preferential treatment range as a contract condition rather than "current low price"
Preferential interest rates are useful as a comparison factor when buying a home. However, what you should really compare is not the advertised minimum interest rate, but how long the preferential treatment range will remain and whether your household budget can withstand the change in interest rates.
We check not only the price of the property, but also whether you can continue to make repayments even after purchasing the property, including repair costs, education costs, and changes in work style. Choosing a low interest rate is not the goal in itself. It is important to choose conditions that will protect your household finances and assets for a long time.
Summary
- The preferential interest rate is the amount of reduction from the standard interest rate, and cannot be compared only by the applied interest rate.
- For the full term preferential type, the preferential range continues, but the base interest rate is subject to fluctuations.
- For the initial period preferential type, it is necessary to confirm the preferential treatment range and interest rate after the fixed period ends.
- Refinance calculations include not only the interest rate difference, but also the balance, remaining term, miscellaneous expenses, and group credit.
- Consider residential mortgage loans and investment real estate loans separately.
Frequently asked questions
What is the difference between preferential interest rate and standard interest rate?
The base interest rate is the base interest rate indicated by financial institutions, and the preferential interest rate is the amount of reduction that is deducted from it. The applicable interest rate that you will actually pay is determined by subtracting the preferential rate from the base interest rate.
Is the initial period preferential treatment plan dangerous?
It is not considered dangerous. It has the advantage of being able to fix the repayment amount during the fixed period. However, if you choose a loan without checking the preferential treatment range and interest rate after the term ends, you may be surprised by the change in your repayment amount.
What percentage difference in interest rate makes refinancing advantageous?
There are no uniform standards. It varies depending on the loan balance, remaining period, various expenses, and group credit details. Compare the current and post-refinancing conditions with the same repayment period and same early repayment assumptions.
Can I use a mortgage loan for an investment condominium?
In principle, it cannot be used. A residential mortgage is a product that is designed to be used as a home for the homeowner or a relative to live in. For investment properties, we use real estate investment loans established by financial institutions.
I also want to read
- Advantages, disadvantages and procedures of refinancing a home loan | Complete explanation with examples
- Should I take out a loan for condominium investment? Differences, advantages and disadvantages between real estate investment loans and home loans
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