Comparing Fixed and Variable Rate Scenarios for a 50 Million Yen Mortgage

Mortgage And Household Finance Series

This series looks at mortgages not from the standpoint of “how much can I borrow,” but from household cash flow and risk management.

• Flat 35 Tops 3% for the First Time
• Comparing Fixed and Variable Rate Scenarios for a 50 Million Yen Mortgage (this article)
• Mortgage Repayment Ratios by Income
• How to Calculate a Mortgage Amount That Is Harder to Break Your Household Budget
• Is Mortgage Prepayment Really Worth It?
• Is a Mortgage an Asset or a Liability?
• Using the New NISA While Carrying a Mortgage
• How to Avoid Buying “Negative Property”

[Summary]

The previous article compared a 50 million yen, 35-year mortgage at a 3.21% fixed rate with a variable-rate case where 0.50% never changes.

Under that strong assumption, the total repayment gap was about 28.79 million yen.

But the real question for a new borrower is different: how much can variable rates rise before the advantage disappears, and when does the timing of rate increases become dangerous?

This article uses two rate-rise scenarios for a 50 million yen mortgage and compares total repayments against a 3.21% fixed-rate case.

The broad conclusion is that variable rates can still look favorable if rate increases come late in the repayment period. But if sharp rate hikes occur early, the advantage can erode quickly.

The important question is not only the final rate level. It is whether the household can withstand a sudden increase in repayments and the risk that principal declines more slowly.

This is not a recommendation to choose any mortgage product. Actual repayments depend on the lender, rate type, fees, insurance, repayment rules, prepayments, and borrowing date.

Assumptions

Loan amount: 50 million yen
Term: 35 years
Repayment method: Equal principal and interest
Bonus payments: None
Fees, guarantee fees, insurance differences, taxes: Excluded

The fixed-rate case uses 3.21% for 35 years, roughly equivalent to the reported Flat 35 level.

The variable-rate cases start at 0.50% and are recalculated every five years.

This is a simplified sensitivity model. Actual mortgages differ depending on reset timing, payment review rules, the 125% rule, treatment of unpaid interest, and prepayments.

Scenario A: Rates Rise by 0.25% Every Five Years

Years 1-5: 0.50%
Years 6-10: 0.75%
Years 11-15: 1.00%
Years 16-20: 1.25%
Years 21-35: 1.50%

In this scenario, the variable-rate total repayment is about 58.77 million yen.

Compared with the fixed-rate total repayment of about 83.30 million yen, the variable-rate case is about 24.53 million yen lower.

Even if the rate ultimately rises to 1.50%, the first 20 years pass at relatively low rates, so the total repayment impact is limited.

But this is a slow-rate-rise scenario. It should not be generalized to all rate environments.

Scenario B: Rates Rise to 3.50% Over 15 Years

Years 1-5: 0.50%
Years 6-10: 1.50%
Years 11-15: 2.50%
Years 16-35: 3.50%

In this scenario, the variable-rate total repayment is about 70.96 million yen.

That is still about 12.34 million yen less than the 3.21% fixed-rate case.

This result can be misleading.

It depends on the specific assumption that rates remain at 0.50% for the first five years, rise to 1.50% for the next five, then to 2.50%, and only reach 3.50% from year 16 onward.

The effect of rising rates is much larger early in the loan because the principal balance is still large.

If rates rise into the high 3% range within the first five to ten years, the variable-rate total repayment can increase sharply and may approach or exceed the fixed-rate case depending on the exact path.

Why the Gap Narrows

In Scenario A, the fixed-variable gap is about 24.53 million yen.

In Scenario B, it narrows to about 12.34 million yen.

The reason is simple: rate increases eat into the early low-rate advantage.

But the size of the increase is not the only issue. Timing matters more.

Early in the loan, the principal is large. A 1% increase on nearly 50 million yen has a much larger effect than a 1% increase after principal has fallen to 20 million yen or 10 million yen.

Mortgage rate risk is therefore determined by both how high rates rise and when they rise.

Do Not Misunderstand the Five-Year and 125% Rules

Some Japanese variable-rate mortgages with equal principal and interest repayments use the following rules.

These rules reduce sudden jumps in the monthly payment.

But the interest does not disappear.

If rates rise and the payment is held steady, more of the payment goes to interest and less to principal. In severe cases, unpaid interest can arise.

“The monthly payment does not change” is not the same as “there is no risk.”

Not All Lenders Use These Rules

The five-year and 125% rules are not universal.

Some online banks and lenders do not adopt them. SBI Shinsei Bank and Sony Bank, for example, explain that they do not use these rules in their mortgage products.

Without the rules, rate increases are reflected more directly in monthly payments. This can make the burden visible sooner, but it also means the household feels the increase immediately.

Even within “variable rate,” the risk profile differs by lender.

Compare not only the headline rate, but also payment review rules, unpaid interest treatment, prepayment flexibility, insurance, and fees.

Household Capacity Needed for Variable Rates

Variable rates can often look favorable in expected-value terms.

But that only works for households with room to manage rate increases.

A variable-rate mortgage is not simply a low-rate mortgage. It is a loan where the borrower manages interest-rate risk.

What Fixed Rates Are For

Fixed rates can look unfavorable in total-repayment simulations.

Even in Scenario A and Scenario B, the variable-rate case was lower in total repayment under the assumptions.

Still, fixed rates have value.

Their value is that the household does not need to forecast future rates. Education costs, retirement savings, living expenses, and repairs can be planned with a known mortgage payment.

The point of fixed rates is not to win the cheapest-rate contest. It is to reduce the risk of being forced to sell the home at a bad time because the household cash flow breaks.

The Final Question Is Whether the Loan Is Too Large

Fixed versus variable matters.

But many mortgage problems do not begin with the wrong rate type.

They begin with borrowing more than the household can carry.

For a 50 million yen loan, the 3.21% fixed-rate payment is about 198,333 yen per month. At 0.50% variable, the initial payment is about 129,793 yen. If the borrowing amount is decided only from that low initial variable payment, the household becomes vulnerable when rates rise.

Mortgage borrowing should be decided from the amount the household can repay, not the amount the lender will approve.

The next metric is the repayment ratio.

Repayment ratio = Annual repayments ÷ Annual income

The next article looks at how far mortgage repayment ratios should be kept by income level.

Sources

• Japan Housing Finance Agency / Flat 35, “Flat 35 Product Lineup”
• KAB ONLINE, “Flat 35 June Minimum Rate Tops 3% for the First Time” (June 1, 2026)
• MUFG Bank, “Five-year rule and 125% rule for mortgages”
• SBI Shinsei Bank, “What are the five-year rule and 125% rule?”
• Sony Bank, “Why Sony Bank Does Not Use the Five-Year / 125% Rules”