With ultra-low interest rates continuing, mortgage refinancing is one of the key funding strategies for property owners and homebuyers. To answer questions such as "The process looks complicated" and "How much can I actually save?",a real example (refinancing from Flat 35 to a variable-rate loan)to explain the benefits, drawbacks, and key points to watch when refinancing.
What are the benefits of mortgage refinancing?
The biggest benefit of refinancing is reducing the total repayment amount through a lower interest rate. If you keep your monthly payment unchanged, you can shorten the repayment period. If you lower the payment amount, you can improve monthly cash flow.
Conditions where refinancing offers major benefits
- An interest rate difference of 1% or more
- A mortgage balance of 10 million yen or more
- At least 10 years remaining on the loan term
Refinancing is generally considered especially effective when these three conditions are met, butthere are also cases where an interest rate difference of 2% or more leads to substantial savings even if all conditions are not metas well.
Real example: refinancing from Flat 35 to a variable-rate loan (2016)
Below is a real example of refinancing carried out under the following conditions.
- Outstanding loan balance: 6 million yen
- Remaining term: 7 years
- Interest rate before refinancing: 2.99% (Flat 35, fixed for the full term)
- Interest rate after refinancing: 0.975% (regional bank, variable-rate loan)
- Interest rate difference: about 2%
Under these conditions, the refinancing benefit (interest savings) wasabout 870,000 yen . Various fees, including administrative charges and registration costs, came to about 200,000 yen, sothe net refinancing benefit was about 670,000 yen . Even if the balance and remaining term are not especially large, a big enough rate gap can still produce a meaningful benefit.
Drawbacks and points to note when refinancing
- Additional fees apply：For a balance of 20 million yen, additional costs of around 500,000 to 600,000 yen are common. You need to compare them with the interest savings
- Refinancing within the same bank is not possible：You need to switch to a different financial institution
- Screening and document submission are required：It takes about one month from application to loan disbursement
- Switching to a variable rate carries the risk of rising interest rates：You should factor in the possibility of higher repayments in the future
Refinancing to an online bank is also an option
In recent years, more borrowers have been refinancing to online banks such as au Jibun Bank and SBI Sumishin Net Bank.A low variable-rate range of 0.3% to 0.5%is achievable, and this can significantly reduce the total repayment amount. However, standardized screening criteria and the lack of face-to-face support should be recognized as drawbacks.
Related reading
- Are online bank mortgages advantageous? A guide to the pros, cons, and interest rate comparison
- Is real estate investing difficult because of a lack of overall capability? Explaining the three barriers of tax, legal matters, and construction
- Real estate exit strategies in an era of inflation and rising construction costs | A thorough guide to whether you should sell or hold
Frequently Asked Questions (FAQ)
Q. How long does the mortgage refinancing process take?
A. It generally takes about one month from application to loan disbursement. The process typically involves document preparation, preliminary screening, final screening, contract signing, and loan execution.
Q. Is there risk in refinancing from a fixed rate to a variable rate?
A. Variable rates carry the risk that repayments will increase if interest rates rise in the future. It is important to decide whether you can accept that risk based on your balance, principal size, and household financial flexibility.
Q. How much are the various fees involved in refinancing?
A. When you total administrative fees, registration costs, stamp tax, and other charges, a balance of 20 million yen typically involves around 500,000 to 600,000 yen in fees. Please estimate the real benefit by subtracting those costs from the interest savings created by the rate difference.
Q. What items are emphasized in refinancing screening?
A. The main screening items are annual income, years of employment, and credit information, including other loans and borrowing status. Screening may be more difficult right after changing jobs or during periods of unstable income.
