BOJ rate hikes to keep weighing on fixed-term mortgages

2026-08-01

With the Bank of Japan holding rates steady at its July 31 policy meeting but signaling it will continue to raise rates, home loan borrowing costs are expected to stay on an upward path. The impact could extend beyond variable-rate borrowers to users of fixed-term loans such as 10-year fixed mortgages.

Check the rules after the fixed period ends

A Tokyo office worker in his 40s was surprised when he reviewed his mortgage terms ahead of the end of his fixed period in the summer of 2026. He had chosen a 10-year fixed loan from an online bank 10 years earlier and signed a contract that would, in principle, shift to a variable rate afterward, but calculations showed the post-transition rate was likely to be about 1.7% a year. Variable-rate loans currently available for refinancing and other purposes still carry rates of around 1%, leaving a gap of about 0.7 percentage point.

Takashi Shiozawa, a director at MFS, which operates the home loan comparison service Mogecheck, said it is not uncommon for borrowers to face unexpectedly high interest rates after the fixed period ends. Mortgage rates are determined by the margin deducted from the benchmark rate, and that margin varies depending on a lender's sales strategy and the timing of borrowing. Under fixed-term plans, some lenders reduce that margin when the loan moves to a variable rate after the fixed period ends, and when the BOJ raises benchmark rates, the resulting increase in the burden can be larger than expected.

Some lenders keep the margin unchanged after the fixed period ends, but even then the terms can be less favorable than those available for a new variable-rate loan. In the office worker's case, the deduction margin remains 1.05 percentage points during and after the fixed period. By contrast, the maximum margin available for a new variable-rate loan from the same lender is 1.41 percentage points, a wide difference. Other lenders offer even larger margins, which means the borrower could end up paying more interest than someone who took out a variable-rate loan from the start.

Refinancing and household review

A survey by the Japan Housing Finance Agency found that use of fixed-term products such as 10-year fixed mortgages has been sluggish recently, even though there were periods 10 years ago when they accounted for more than 30% of loans. A study by the Sumitomo Mitsui Trust Research Institute for Future Asset Management, covering people who took out home loans from 2021 onward and chose fixed rates, found that outside Japan's three major metropolitan areas and in the Chukyo region, the 10-year fixed option was selected most often, while in the Tokyo metropolitan area it came close to the all-term fixed option.

Researcher Reina Yano said that because the home loan tax deduction period was 10 years in the past, some borrowers chose a 10-year fixed loan to avoid rate fluctuations during the deduction period and planned to make early repayments afterward. But 10 years later can also be a time when child-rearing costs are heavy if the home was bought around marriage or childbirth, making it hard to direct money toward early repayment as planned.

Data from MFS on borrowers seeking refinancing show that the most common remaining loan term is 25 to 26 years, which would roughly correspond to the 10-year mark if the loan is based on a 35-year repayment schedule. Yasukiko Fukano, a financial planner, said many people are caught off guard when the fixed period ends because they have not fully checked the interest-rate rules in advance.

To keep interest costs down, it is important first to review the contract terms early and estimate the rate that will apply after the fixed period ends based on the current benchmark rate. That should then be compared with current refinancing terms. According to Shiozawa, if the difference between the two is around 0.3%, refinancing can be worthwhile. Refinancing involves fees and registration-related costs, but if the rate gap is large enough, the reduction in interest payments may outweigh those costs.

Yano said that given the time needed to check the terms and complete refinancing procedures, it is prudent to start considering options about three months before the fixed period ends. At present, rates for fixed-term and all-term fixed loans are rising ahead of variable-rate loans, and refinancing to reduce interest costs mainly means switching to a variable rate. However, even if refinancing eases near-term payments, the risk of future rate hikes remains. On July 31, the BOJ also signaled it could accelerate the pace of rate increases if needed, making a review of household finances essential.

Another option is to refinance into a fixed-rate loan to avoid future rate hikes, but fixed-term products such as 10-year fixed mortgages are increasingly seen at levels higher than all-term fixed loans. All-term fixed loans are also moving above 3% a year for the Flat 35 program from the Japan Housing Finance Agency, so households need to soberly assess whether they can bear the repayment burden.

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