Choosing a mortgage in ideal situations

[preciousklay]

There are many threads here about mortgages in less than ideal situations (non-PR, inaka houses, income coming from abroad etc.), but how should one go about choosing a bank for mortgage when the situation is seemingly ideal?

Let's say someone

• has PR and/or Japanese spouse
• have been in Japan for many years
• have been working for the same Japanese company for years as a full-time employee. The company is big/stable, not a new/start-up
• aiming to finance a home with zero down payment
• the mortgage amount is 4-6x their yearly gross salary

The variable vs fixed rate debate has been discussed multiple times, e.g.

https://www.reddit.com/r/JapanFinance/comments/u8ltkn/_/i5m6es6

so let's put that aside and focus on how one should compare the banks assuming they get pre-approved for multiple of them.

Advice from the wiki seems to be to check banks on https://kakaku.com/housing-loan/ and https://mogecheck.jp/ but it seems that almost all banks offer very similar rates. Looking at variable rates right now (2024 February) e.g.

• the current lowest interest seems to be 0.219% from auじぶん銀行
• next is 0.290% from PayPay 銀行 (for zero-down)
• Prestia also offers 0.34% (for GOLD members or for amounts of 50m+ yen) https://www.smbctb.co.jp/en/wealth/housing-loan.html

When looking at the monthly payment, the difference between these rates is pretty small. Considering a 35 year loan of 70m yen the monthly payments are:

• 0.219% -> ¥173,151
• 0.290% -> ¥175,288
• 0.340% -> ¥176,804

So the difference is only 1-2%, which makes me wonder what else to consider other than the interest rate. Things that come to my mind:

• Initial costs including guarantor fees: many banks seem to only charge 2.2% upfront fee
• Life insurance: many (all?) banks seem to include the basic life insurance by default (if you die, the loan is cancelled) and some offer extra insurance for either free or an additional fee (e.g. if you are diagnosed with cancer, they half the remaining principal)
• Early repayment fees and type (reduce the length or reduce the monthly payment going forward)

Is there anything else to consider?

Almost all of these rates are tied to short-term prime lending rate (短期プライムレート), right? So e.g. a mortgage with an interest of 0.3% will always be 0.1% lower than a mortgage with 0.4%, correct?

 

[victoria37]

@preciousklay Speed and flexibility of service, especially if you're trying to buy a popular property. Some banks take a very long time to process applications. It's always good to apply at a several banks. Also, some banks like SBI Shinsei don't do pre-approvals.

Insurance options are not all made equal. Interest rates are different and coverage is different. Cancer insurance can cover the full loan amount on diagnosis too, not just half.

The option to add renovation costs to the loan. Some banks allow you to borrow extra, but having an explicit renovation loan rolled into the mortgage can allow you to borrow even more. Mizuho for example states that renovations can increase the appraised value of the property when determining loan maximums.

Some banks also allow for temporary reductions or postponement of loan payments for free.

Some people may also prefer to interact with humans in person, which net banks generally don't offer.

 

[kel_sulz235]

@victoria37 Prestia also doesn't do pre approvals 仮申請 which is annoying because

-since us foreigners are at higher risk of being turned down for a loan, you really want to pass the pre approval to know you can get one.

-slows things down, as you say. Nicer to have that pre approval in hand so you can move quicker

-Not sure, but I assume if you have a pre approval the seller is more likely to accept your offer...its lower risk for them that you disappear

 

[crazyredchristian]

@preciousklay I would consider life insurance as every bank has different rules and packages. You need to check what fits your needs and wallet best.

From my experience I can reccomend checking SMBC, they offer 0.29% but their processing time is really short. Pre-approval after one day once all documents were submitted. Approval under two weeks.

MUFG takes long time. More than a month, but they can offer less than 0.27 once you start negotiating.

 

[laya]

@crazyredchristian I’m curious about what you say about negotiating. Can you negotiate an interest rate (a bigger discount) than what their going rate is? How does that work? What step in the process is that?

 

[crazyredchristian]

@laya Of course you can negotiate interest rate.
Once you are pre approved they let you know what interest rate they can offer to you.
Once you have “offers” or pre approvals from several bank you can use that information to negotiate lower rate.
Let’s say MUFG gave you 0.34% and SMBC 0.29%.
You can tell MUFG you got lower rate from SMBC and ask them to reconsider their offer. As simple as that.

 

[laya]

@crazyredchristian Thanks! This is great to know!
Currently have pre approval from MUFG but applying for pre approval at another bank with a lower rate. If I get it, I will do just that and negotiate, as I’d rather stay with MUFG because that’s where all my accounts are. Thank you!

 

[pixeloriousspriteson]

@preciousklay 1) Please note that Paypay does not have the 5 year and 125% rules. This means that if the rate goes up next month, they can and will raise their rates immediately up to the maximum without cap.

2) These banks typically have base rates and a discount. Let's say AU JIbun has 2.5% as base rate and 2.281% discount, that means when rates go to 5% you will still have the discount on that rate. Higher discounts are in general preferred as they will shield you more.

3) I assume (just an assumption) that net banks will immediately raise rates while local banks will be slower to do so.

4) Costs of paying the loan back early can be relevant. Most banks have a free online version

5) Many local banks allow loads of different ways to refinance.

6) If rates go up and you do not pay all, they tack it on at the end, some banks allow to extend the loan, some banks will force you to pay it in one lump sum at the end.

7) Life insurance and costs

8) speed and easy of process

9) Local banks may lend for properties in rural areas that larger places reject

10) Some banks will need you to have your salary paid into their account. (Likely you will want to do this anyway). So at that point if they become your main bank, then ATM fees and other bank fees become relevant.

I am wondering how refinancing works here. Is there chances for cost savings by moving around? I guess fees will eat up most of the benefit.

 

[victoria37]

@pixeloriousspriteson I doubt at today's rock-bottom rates there would be much benefit to refinancing, but even 10 years ago interest rates were quite a bit higher because of the smaller discounts offered. Refinancing from 0.8% to 0.3% might be beneficial at high principal amounts. Outside of interest rates, the supplemental benefits like insurance coverage or extra points may not have been as good as well.

 

[manishk012]

@victoria37 I looked at refinancing but the fees for opening the new mortgage can be so high that it makes very little sense unless you're 100% sure that you're staying in place for 20 more years.

 

[ginger18]

@preciousklay we went with Shinsei. and then we had a choice, take the lower rate (0.37%) and pay 2.2% bank cost, or the higher rate (0.60%) and no bank cost.

we needed 1800万.

0.37% = 1962万 after 35 years, and 40万 upfront for bank cost

0.60% = 1996万 after 35 years, and investing the 40万 we saved. with 3% ROI that's 125万 after 35 years.

we went with the latter.

 

[jandolphrohnson]

@preciousklay If all the banks are much of a muchness, you might benefit by picking one whose ecosystem you're in. Sometimes you get e.g. status, a better savings rate etc., if you have a mortgage with the bank.

 

[knr80]

@preciousklay I think most of the issues have been covered by other users, but I'll add that not all banks offer bridge loans. In my case, we will have separate loans for the house and the property, and we'll be paying for the (empty) land while waiting for our house to be built. I beleive each of those loans comes with its own set of administrative fees as well.

There are also different options for up front fees. Many banks charge a flat 2.2%, but I've heard others will offer a lower interest rate for the duration of the mortgage if you put a certain amount down.

 

[blueskye30]

@preciousklay I remember I was recommended not to use internet banks, although I don't remember the exact reason why. They all have rates that are cheaper than real banks but there was a gotcha.

 

[countrygirl90]

@preciousklay RemindMe! 1 day