Most homeowners around the world finance their property, but the terms for loans and mortgages can vary from country to country. This article explains the standards for loans by Japanese banks and can help you estimate how much you can afford to borrow.

Down payment

All Japanese banks that lend to foreign residents expect you to put down a certain percentage of the property price. The minimum is 10%, but generally, 20-35% is accepted.

Additional fees

You have to include the various taxes (usually around 6%) and the brokerage fee (usually 3% plus JPY 60,000 and consumption tax) payable to the agent to the total price of your new home. These will also need to be factored into your down payment.

Acceptable loan amounts

As a rule of thumb, Japanese banks will allow you to borrow around eight times your annual income. No more than 25% of your monthly gross income should be expended on mortgage repayments. For example, if your mortgage is JPY 125,000 per month, your income will need to be at least JPY 500,000.

Loan lifetime 

The lifespan of a mortgage in Japan is between 1-35 years. In general, applicants between 20 and 69 years old will be accepted, but you should plan to have your loan fully paid by the age of 75-80 years old to be eligible for your chosen time span.

Interest rates

You can choose between fixed and floating (also called variable) interest rates. Japan currently offers historically low interest rates, with rates for 10-year fixed mortgages generally available under 1% for the initial set period. Variable loans are currently even lower; for example, MUFJ bank offers 0.65% for a floating loan. The rate is not fixed and could go up, but with the current economic climate, many homebuyers seem to expect these rates to last for the foreseeable future. In 2018, more than half of mortgages taken out were variable to take advantage of those rates.

Example case: Buying a detached family home in outer Tokyo

Let’s assume you have your eyes on a 100 m² 3LDK house with car parking in Setagaya ward, an area popular with young families. The home is 10 years old, a wooden structure and a 10 minutes' walk from the nearest station. The average price for such a property in January 2019 was around JPY 60 million according to Uchi no Kachi, so this is the amount we will use for our example.

We need to add approximately 9% for taxes and the brokerage fee, leaving us with a total payable amount of JPY 65.4 million. A 20% down payment, or JPY 13 million, will be required by most banks that offer mortgages for foreign residents. If you can show liquidity for the down payment, you can qualify for the JPY 52.4 million loan.
 
Let’s assume you choose a fixed term loan at 0.9% interest with the idea that interest rates might rise again in the mid to long term. If you want to repay this loan within 35 years, or 420 monthly payments of JPY 145,500, your monthly income needs to be at least JPY 582,000.
 
However, the average monthly salary in Japan for someone in their 30s was only JPY 390,000 in 2016, according to Doda, a Japanese job portal. In that case, a home with the same specs in Katsuhika City might be more appropriate. There, the property would cost you around JPY 39 million including taxes and fees. With a JPY 7.8 million down payment and a fixed-rate loan over 35 years, it could be repaid in 420 monthly payments of JPY 87,000, which is appropriate for a monthly salary of around JPY 350,000.

By Mareike Dornhege

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