housing loans | Cat Foreheads & Rabbit Hutches

Point of interest

On September 5, Sankei Shimbun ran a story that’s gotten a lot of attention. Sankei reports that the homeowning rate among Japanese people in their 20s is the highest it has ever been. The reason is the skyrocketing price of real estate in major urban regions, in particular the Tokyo metropolitan area, and an increase in interest rates for housing loans that may go even higher in the future. The idea is to buy now before properties and loans become too expensive, and now that some banks are offering 50-year loans it becomes a bit easier, at least theoretically.

The communications ministry says that the home ownership rate in 2025 among households where the head-of-household is in their 20s was 40.7 percent, the highest on record. Sankei reports that experts tend to recommend you not buy a home whose price is more than 6 times your annual income, but according to the job search magazine Recruit, in the Tokyo metropolitan area prices for new condominiums are going for 8 times the average annual income, regardless of age.

Since a good number of households with married couples in their 20s have double incomes, these couples are choosing so-called pair loans, where both spouses shoulder the debt. A 50-year loan spreads out the payments more, rendering each monthly payment lower than if the couple took out a standard 35-year loan, so if a couple takes out the loan at 25, they would finish paying it off at 75. Though this makes the montly pressure less, it also reduces the couple’s ability to save for old age, especially since the longer the payment period, the higher the interest rate.

The day before the Sankei article, Asahi Shimbun went into more detail about what these young people will have to contend with by buying property so soon. The central point of the Asahi article is that the Bank of Japan, by raising its prime rate for the first time in 31 years last June, is also causing interest rates on housing loans to rise. The two megabanks, MUFG and Mitsui-Sumitomo, increased their variable interest rates for housing loans this month by about 0.25 percentage points. Asahi calculates that this rise in interest will increase monthly payments for a 35-year loan on ¥50 million by ¥20,000. Mizuho and other major banks have not announced any increase in interest rates, but probably will at some point.

Potential home buyers also have to take into consideration that the BOJ is likely to raise rates even more in the future. So right now MUFG and M-S are charging 3.375 percent interest for a standard loan, though the rate can go as low as 1.195 percent for “preferential loans,” meaning borrowers whose ability to repay the loans is easier to guarantee.

Eighty percent of borrowers choose variable interest rather than fixed interest because, initially, variable rates are lower; but, of course, they are subject to change every six months or so depending on economic circumstances, so they could easily go up.

According to a housing loan research organization, if someone borrows ¥50 million for 35 years at the variable rate, they will pay on average about ¥20,000 more in monthly payments after the BOJ increase than they did before the increase.

The organization also reports that almost all the people who choose a variable interest rate also choose to pay interest and principal at the same time and in the same monthly amounts, regardless of the current interest rate, but in doing so they tend to pay more interest in the long run. Those who choose to pay the interest first pay less interest in the long run. And those who pay both interest and principal at the same time with the interest changing based on the balance of the principal—meaning the monthly payment will not always be the same—will also pay off the interest more quickly.

Do you qualify?

Posted on February 3, 2025 by catforehead

Tax season is our least favorite time of the year, and probably yours, too, so we weren’t necessarily inclined to read an article about housing loan income tax deductions that appeared in the Jan. 26 Asahi Shimbun, and not just because we don’t want to be reminded of all the calculations we will have to make and the forms we still have to fill out, but also because we paid off our meager mortgage just a few years ago and so the article has nothing to say to us. But it may have something to say to others.

The article focuses on one particular qualification for a housing loan tax cut, which sounds fairly obvious. You qualify if you bought a residential property to live in and took out a loan to pay for it. The article mentions a realtor who received a phone call from someone who bought a house from them, complaining that they had been refused a tax deduction for their housing loan. As it turned out, the client, who is a salaried employee, had been transferred to another location by his company, and so he decided to rent out the house he bought through the realtor during the indefinite transfer period. The client’s whole family moved with him to his new location. After he submitted the proper form for the housing loan deduction with his tax return, he received a call from the tax office saying that he no longer qualified because he didn’t live in the house for which he took out the loan.

In principle, the deduction covers 0.7 percent of the housing loan balance for a given tax year up to 13 years, a maximum loan amount of ¥50 million, and a maximum tax deduction of ¥4.55 million. The deduction applies to both income tax and local tax, and if the income tax deduction is more than the tax that is actually paid, then the difference is applied to the local tax.

But as the tax office pointed out to the property owner in question, if the person who took out the housing loan is not living in or on the property for which they took out the loan then the deduction does not apply. A tax accountant told the Asahi that the tax office is very strict about this rule since the central government essentially forfeits ¥1 trillion a year in potential tax revenues because of the housing loan tax deduction.

In the case mentioned above, the borrower/owner should have reported rental income after deducting expenses, but apparently many people in the same situation neglect to do that. The client in this case was angry that the realtor did not inform him of this rule when he bought the property, but the realtor didn’t know that the client would be transferred so there was no reason to talk about such things. Nevertheless, there are a number of circumstances under which the housing loan tax deduction does not apply, and realtors should be clear about them. In many cases, homeowners who file for housing loan tax deductions who do not live in the homes themselves are breaking the law. The tax accountant says that in all likelihood, if the tax office finds out that someone is renting out a property that they own without reporting the rental income, the tax office will not only cite the owner for claiming a tax deduction they didn’t qualify for, but will charge a penalty on top of the taxes owed for the unclaimed rental income and the loss of the deduction.

Yen for Living: Houses As (non-)Assets

Posted on July 19, 2019 by catforehead

For sale? Good luck.

The following article was submitted as the July entry in our Yen for Living column for the Japan Times. However, it was rejected by the editors.

One of the issues facing voters in this month’s Upper House election is the national pension system. The government received criticism after the Financial Services Agency announced that a couple would need at least ¥20 million in savings when they retire to supplement their pensions. Opposition parties are using this figure to point out flaws in the pension system, and the ruling Liberal Democratic Party is challenging the FSA, saying that current pension benefits are adequate to support people after they retire.

In a letter published in the Asahi Shimbun on July 1, a 63-year-old dentist wrote about the ¥20 million figure, saying that when he was 30 he started saving for his old age. As a self-employed person he knew a public pension would not be enough when he retired, and so he joined a cooperative that, in return for monthly premiums, guaranteed a one-time payment when he reached a certain age. Over the course of 30 years, he paid a total of ¥18 million into the fund in the belief that he would receive ¥40 million in the end. But he received only ¥20 million. He also paid into a private pension plan, convinced that when he turned 60 he would start receiving ¥280,000 a month for a limited time. As it turns out, he is only getting ¥120,000, because interest rates have plummetted since he was 30. When he’s 65, he will start receiving benefits from his national pension, but since he belongs to the kokumin nenkin system for the self-employed and others who weren’t employed by large companies, he will only receive ¥65,000 a month. So even though he basically “invested” in private plans and paid his obligatory national pension premiums, he is not going to have as much income in his retirement as he once thought he would receive. Read More

The burden of expectations (3)

Posted on September 15, 2013 by catforehead

What we’re trying to avoid

We went to Tsukuba on a Friday, and the following Monday the woman from SBI Mortgage called and said we had cleared the preliminary screening. She had already given us a checklist of the documents we would need to submit for the final screening and so we started to collect them. It’s a time-consuming process because many documents are required and you have to go to different government offices to get them. The woman had already photocopied our drivers licenses, national health cards, and three years worth of tax returns. Now we had to get real proof of our worth, so to speak. The easiest to obtain was proof of residence (juminhyo) from the local city office. The checklist still had gaikokujin toroku shomeisho, meaning proof of an alien registration card, but the Foreign Ministry had phased out registration cards last year. We could also pick up inkan shomeisho, meaning proof of registered seals, at city hall. In bureaucracy-obsessed Japan, seals remain the looniest relic, since anyone could go to the store and buy one with another person’s name on it and use it in that person’s stead. Signatures are still not commonly used for purposes of witness and certification, though they’re obviously more individual. In order to somehow safeguard the seal as a means of certification you are supposed to register yours at your local government office, and then when called upon by a party with whom you are drawing up a contract you bring that party “proof” from the local government office that the seal you are using is kosher, though I have no idea how counterpart parties check this evidence unless they’re experts in wood-block printing.

A bit more difficult to secure was proof of our income for the last two years. The copies of our joint tax return were used for the preliminary screening but for the next phase they needed actual documents from both the national and local tax bureaus where we lived, which meant taking a trip to Narita as well as a trip into Tokyo, since we lived in Arakawa Ward for the first six months of 2011. In Narita we could also go to the local branch office of the Justice Ministry to obtain records on the land we were planning to buy–history of ownership as well as the official registered survey map of the plot, or, in our case, plots, since the land we were buying was actually two adjoining lots, one about 200 square meters and the other a mere 20 square meters. This smaller plot would prove to be a hassle, but more on that in a later post. On Tuesday we took a trip to Narita to get the documents we could. Read More

The burden of expectations (1)

Posted on August 17, 2013 by catforehead

What we have to work with

Once you embark on a certain course of action, even if the motivation is basically speculative, matters often progress of their own accord. Though we hadn’t yet secured the plot of land we liked, the fact that for a month it was ours for the taking made us feel strangely possessive of it. It is only a ten-minute bike ride from our apartment, and in the weeks after our visit to A-1 we would drop by just to have a look at it and imagine what a house might look like sitting on it. Sometimes we would address a pressing consideration, such as: What is the Internet capability in this leafy corner of the city? It was a real consideration since our work depends on online access, and one day we asked the carpenter next door, who just happened to be outside puttering around, what sort of access he had. He didn’t, and didn’t seem to know anything about it since he didn’t need the Internet for his work and wasn’t a technophile. While we admired his resistance to the irresistible pull of modern life we also felt slightly taken aback. Were we thinking of moving into the Ozarks?

Later, we met another neighbor who assured us that optical fiber connections were available in the area, but the seed had already been planted. What about the water we’d be consuming from the well we’d have to dig? The carpenter said it tasted terrible and that he only used it for washing, while the other neighbor thought it tasted better than the city water he used to drink. We knew there was no accounting for taste, but that’s quite a gap in perception. The realtor said something about the depth of the wells: that the carpenter’s was shallow and the other neighbor’s much deeper, but that information only made us more confused and obligated to do even more research into the matter. In other words, coming to a decision about the land was going to be even more complicated than we’d thought. Read More