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Given the choices in the market we had a look at the sort of rates and costs for a mortgage loan for a residential property in Japan, comparing three banks offerings for a thirty year thirty million yen loan (as of May 2005).

There is greater competition amongst the banks and a variety of campaign offers, but you need to consider all the charges to come up with the true cost.

Thirty Years First Ten Years` Rate Fixed

For this comparison we wanted to look at fixing the interest rate for the first ten years

*Campaign Interest Rate

Bank A had larger charges for commissions for guarantee fees and repayment fees but the interest charge was 0.4 percent lower than Bank B and 1.4 percent lower than Bank C. 1.4 percent on thirty million yen is 420,000 yen per year, so Bank A even though it has higher other charges would be cheaper than Bank C.
Bank B interest rate is 0.4 percent higher than Bank A but there is no guarantee fee and repayment charges are cheaper.

Thirty Years First Three Years` Rate Fixed

In this case we looked at fixing for first three years as the interest rates appeared low.

*Campaign Interest Rate

Given the lower interest rates for a three year fixed rate the contrast this time was less marked between our sample. The interest difference between Bank A and Bank C was 0.55 percent which equates to 165,000 yen per year on our loan, but in the case of Bank A you have to pay a guarantee fee of 574,000 yen, which means that when looked at over three years there is no real difference in cost.

Other Factors

Some banks offer facilities whereby you can have money offset in your account or have money transferred above a certain balance against the loan. This can be very attractive for yen savings which otherwise be earning close to no interest.

In Japan there is a special tax benefit for loans taken out for qualifying residential property, being an annual 1 percent of the loan amount as a tax refund. The following is an outline of the scheme, covering changes made in 2005.

Qualifying Loan Conditions

It has to be a loan for more than ten years for any of the below;

�@　for acquisition of or building a residential property

�A　for land for the above �@

�B　enlarging a residential property for residential purposes

Qualifying Conditions for the Property

�@　Floor space of at least 50 sq meters, excluding the commonly owned areas in an apartment

�A　For a mixed use property, the residential part has to be over half

�B　To qualify in a particular year, the individuals income has to be below 30 million yen

�C　Individual did not already receive certain property related tax benefits in the previous two years

�D　Move in within six months of purchase and still occupying as at 31 Dec of the first year of claiming

�E　If the building is not new it cannot be older than 20 years (25 in some cases)

�F　If not new the property was used after being built

�G　If purchased the property was not bought from a related person

�H　Improvements have to be for own residential purposes

�I　Move in within six months of Improvements and still occupying as at 31 Dec of the first year of claiming

�J　Improvement works cost more than 1 million yen

�K　In case of mixed use building improvement more than half the cost of Improvements has to be for the residential part

Amount of the Benefit

Outstanding Year End Balance of the Mortgage (up to a maximum)　ｘ　Allowance Ratio

Acual Benefit is Based on the Year of Moving In

Employees Claim Procedure

Those who are employeed will have to make a claim with the tax return for the first year, but in the following years it will reimbursed automatically through the year end payroll tax adjustment.

Points to Watch Out For

The fact that the loan has to be for more than ten years is important to note.
Although it can be very worthwhile to accelerate payments of your home mortgage by making a capital sum repayment, some home loans in Japan specify that repayments are used to shorten the life of the loan. If the loan is so shortened that the remaining period is less than ten years, you will no longer be able to claim the above benefit from that year.