February Flat 35 Rate Drops For Second Month in a Row

The Japan Housing Finance Agency (JHFA) has announced the February 2016 rates for “Flat 35” and “Flat 50” home mortgage loans that financial institutions can charge for these popular securitized mortgage products. The February rate is the second consecutive month of decreases in the official rates.

Competition Among Banks and the BOJ’s Negative Rate Decision

As background, large Japanese banks have recently been in heated competition to lure consumers who are looking to take advantage of historically low rates. According to the Nikkei Shinbun (February 2, 2016), Sumitomo Mitsui Trust Bank is offering an interest rate as low as 0.7% for a 10-year fixed-rate mortgage loan, which is on par with variable rates being offered by most other Japanese banks.

On January 29th, the Bank of Japan (BOJ) also surprised markets with an unexpected cut to a benchmark rate to below zero. The policy essentially means that banks are paying for the privilege of parking their money. In theory, negative rates are supposed to push banks to lend more to companies, which will then spend and hire and jumpstart a “virtuous cycle”.

The central bank said in a statement announcing the decision it would cut interest rates further into negative territory if necessary, in its battle against deflation.

Market observers point out that negative interest rates charged to high street banks by the BOJ will have a spillover effect for consumers in the form of lower deposit rates and home mortgage rates, which means that we may see lower mortgage rate announcements this year if the BOJ continues to lower rates further into negative territory.

Now back to this month’s announcement.

Flat 35

Flat 35 loans are fixed interest loans with terms of 35 years, offered by a wide variety of Japanese banks, and securitized by the JHFA. The JHFA is a Japanese public corporation similar to Fannie Mae in the US or the Canada Mortgage and Housing Corporation.

For January 2016, the interest rate for Flat 35 loans where the term is 21 years or above and less than 35 years, and where the loan amount is 90% or less than the price of the property, is between 1.480% (a drop of 0.06% compared to January) and 2.030% (also a drop of 0.06% compared to January). The majority of financial institutions which offer Flat 35 loans are offering rates of about 1.480% this month for LTVs of less than 90%.

For Flat 35 loans where the loan amount is over 90%, the rate is 1.920% (an increase of 0.250% compared to January) and 2.470% (an increase of 0.250% compared to January). The majority of financial institutions which offer Flat 35 loans are offering rates of about 1.920% this month for LTVs of more than 90%.

Rate for 20-Year Payback Period

For loans where the payback period is 20 years or less and where the loan amount is 90% or less, the February 2016 rate is 1.210% to 1.830% (a decrease of 0.060% compared to January), with the majority of banks offering the lower-end 1.210% rate. In cases where the borrower is financing more than 90% of the purchase, the February rate is between 1.650% and 2.370%, with most banks offering the lower-end rate. This is an increase of 0.250% compared to January.

Flat 50

For Flat 50 loans where the term is 36 years or more and 50 years or less, and where the amount being financed is 90% or less, the February rate is between 1.930% and 2.430% (a decrease of 0.080% compared to January), with the majority of banks offering 2.180%). Where the amount being financed is more than 90%, the rate is between 2.370% and 2.870% (an increase of 0.230%), with most banks offering 2.620%.

For comparison, according to Bankrate, the benchmark 30-year- fixed-rate mortgage in Los Angles fell to 4.09% from 4.14% in the last week of January, based on Bankrate.com’s national survey of large lenders.

Qualifying for a Mortgage as a Foreigner

For more information on qualifying for a home mortgage loan as a foreigner in Japan, please see our articles on Home Mortgage Loans for Foreigners in Japan, Basic Requirements for Getting a Mortgage as a Foreigner in Japan, and this Home Buyer Profile.

Many Japanese banks do require non-Japanese home loan applicants to be married to a Japanese national or to have permanent residency (PR), but there are some banks that will lend to foreign nationals who have a working visa and a certain minimum annual income level, usually about 7 million yen, as explained in this article on Investing in Residential Apartment Buildings in Japan.

For last month’s post on Flat 35 rates, please see: January Flat 35 Rate Drops for First Time in Two Months

Photo: Traditional Japanese house in Tamozawa-goyoutei, Nikko, Tochigi prefecture