With the Bank of Japan taking steps toward normalization on March 19, interest rates are expected to rise gradually, which is likely to have an impact on daily life. The photo shows an apartment complex in Tokyo. Photographed in June 2021 (2024) Reuters/Fabrizio Bensch
TOKYO (Reuters) – With the Bank of Japan taking steps toward normalization, interest rates are expected to rise gradually, which is likely to have an impact on daily life. One of them is a home loan. There is a possibility that there will be moves such as early repayments in anticipation of future interest rate rises. If interest rates actually rise, the repayment period will be delayed due to an unexpected increase in the interest payment burden, and if there is an outstanding mortgage at the time of retirement, we predict that people will convert to a reverse mortgage to reduce the payment burden. There’s also a voice.
As the Bank of Japan’s low interest rate policy continued for a long time, an increase in the number of users of variable mortgage loans, in which the initial interest rate was set at a low level, increased. Currently, variable types account for about 70%. The variable base rate is the short-term prime rate, which is a short-term lending rate of one year or less. If this rate rises, mortgage interest rates will also rise, increasing the burden on users.
Although the Bank of Japan has ended its negative interest rate policy and abolished long- and short-term interest rate manipulation (yield curve control), it says it will maintain an accommodative environment for the time being. Although it will depend on the rate of rise in prices, the consensus among market participants is to keep the policy interest rate at around 0% for the time being, and it is not expected that short-term interest rates will continue to rise.
Katsuhiko Kato, chairman of the Japanese Bankers Association (president of Mizuho Bank), said at a press conference on the 14th that interest rates are not going to rise rapidly and that “the interest burden will not immediately increase.” A government official said, “I think that lifting negative interest rates and raising them to 0.25% or 0.5% are slightly different issues.”
However, even if interest rates do not actually rise, if they are expected to rise in the future, some users may take early action to protect their livelihoods.
Takashi Shiozawa, chief operating officer (COO) of MFS (Chiyoda-ku, Tokyo), which operates the mortgage comparison service “Moge Check,” said, “There is a possibility that some people will make early repayments in advance due to concerns that interest rates will continue to rise.” “There is a certain gender,” he pointed out. In that case, funds that would have been used for investment or consumption would be used for debt repayments, which could have a negative impact on the economy.
S&P says, “If Japan’s policy interest rate is raised to 0.5% and the short-term prime rate increases by 40 basis points from the current level, the monthly payment amount for variable rate mortgages will be about 1.05 times the current level. It is estimated that this will increase.
According to the Japan Housing Finance Agency, the outstanding housing loan balance at the end of fiscal 2022 will be 215,942.6 billion yen. Financial institution officials explain that inquiries about home loans are increasing. So far, there have been few concrete moves, such as early repayments or refinancing to fixed interest rates.
Some believe that if interest rates rise, the use of reverse mortgages will increase. This is a method of raising funds using a home as collateral, and the number of users, especially the elderly, is gradually increasing.
According to the Ministry of Internal Affairs and Communications, 80% of people over the age of 65 own a home, and “elderly people whose flow income is limited to pensions are thinking about how to utilize their home ownership” (Japan Housing Finance Agency Research Group). The traditional custom of inheriting ancestral homes is fading away, and an increasing number of elderly people want to spend their retirement years without bothering their children.
The loan amount for a reverse mortgage is determined by multiplying the appraised value of the home by a certain amount. Furthermore, interest rates tend to fluctuate. There are products in which borrowed funds can be used only for housing-related purposes, and products in which borrowed funds can be used for a wide range of purposes, including for living expenses.
According to the Japan Housing Finance Agency, the balance of reverse mortgages, which can only be used for home purchases, was 180.3 billion yen (up 6.4% from the previous year) at the end of fiscal 2022. This has increased approximately four times from 45.8 billion yen in FY2013. There are no statistics on products that can be used for a wide range of purposes, such as living funds, and the market size is unknown. Financial Do, which guarantees reverse mortgages, estimates the market size to be over 2 trillion yen.
Resona Bank, Saitama Resona Bank, and Kansai Mirai Bank began handling products in May 2011 that can be used for living funds, as part of their business for middle-aged and senior citizens, in addition to products that can only be used for housing funds.
Mr. Kumahito, group leader of the Life Design Support Department at Resona Bank, says, “The need is higher than expected.” If you are past retirement age and still have a mortgage, you should be aware that if the interest rate goes up,
Home loan repayments may become difficult. There may be a need to reduce repayments by switching to reverse mortgages, where you only have to pay interest.”
(Ritsuko Shimizu, Kentaro Sugiyama Editing: Nobuhiro Kubo)
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