Comparing Fixed vs. Variable Rate Mortgages in Japan

When I financed my third rental property back in the day, my loan officer slid two rate sheets across the desk: a variable rate at 0.6% and a 20-year fixed at 1.4%. That 0.8 percentage point gap looked huge on paper, but on a 30,000,000 yen loan it worked out to roughly 12,000 yen a month. I picked variable, and it’s paid off every year since — but I’ve also watched other landlords get burned by that same choice when they didn’t understand what they were signing up for.

Nine properties and over 15 years of mortgage renewals later, I’ve used both fixed and variable loans, refinanced twice, and sat through enough bank interviews to know the sales pitch from the substance. Here’s how I actually think about the decision, not the textbook version.

How the two loan types really work in Japan

A variable rate mortgage (変動金利, hendou kinri) is usually pegged to the short-term prime rate and reviewed twice a year, though most Japanese banks only adjust your actual monthly payment every 5 years, with a rule capping any increase at 125% of the previous payment. That cushion is a big reason variable loans feel safer here than in countries without it. A fixed rate mortgage locks your rate for a set period — 10, 20, or the full 35-year term — and typically runs 0.5 to 1.0 percentage points higher at the time you sign. On my current portfolio, six of my nine loans are variable and three are fixed, split based on when I bought and how nervous I was feeling that year.

The real cost difference over time

Run the numbers on a typical 25,000,000 yen loan over 30 years. At a variable rate around 0.5%, your monthly payment lands near 83,500 yen. At a 20-year fixed rate around 1.3%, you’re looking at closer to 91,200 yen a month — about 92,400 yen more per year. Multiply that across a 9-property operation and the gap becomes real money fast, which is exactly why so many landlords default to variable without thinking it through. The catch is that variable payment is only fixed until the bank reviews it, and if the Bank of Japan’s policy rate moves up 1% over a decade, that same loan could cost you 15,000 to 20,000 yen more per month by year eight or nine.

What actually changed my mind on property number seven

By the time I bought my seventh property, interest rates had started drifting up after years of being pinned near zero, and I had four variable-rate loans already exposed. I ran a stress test: what happens if rates rise 1.5% over the next 10 years? On that single property, my cash flow margin would have shrunk from about 28,000 yen a month to under 6,000 yen. That’s too thin for comfort, so I fixed the rate for 20 years on that one loan even though it cost me an extra 9,800 yen a month upfront. It was the first time I paid for peace of mind instead of chasing the lowest number, and I don’t regret it.

Questions I ask before choosing on any new property

• What’s my current debt-to-income ratio across all properties, and how much room do I have if payments rise 10-15%?
• Is this property’s cash flow margin above 20,000 yen a month, or is it already tight?
• How long do I realistically plan to hold this property — under 10 years, or long term?
• Can I refinance later if rates move, or does this bank charge a penalty (often 1-2% of the remaining balance) for early payoff?
• What does my total monthly mortgage exposure look like if every variable loan resets at once?

A middle path most people overlook

You don’t have to pick one or the other for your whole portfolio. I mix them deliberately: properties with tighter margins or older tenants I don’t expect to turn over soon get fixed rates, and properties with strong cash flow or ones I might sell within 7 years get variable. Some banks also offer a mixed loan where you split the principal — say 60% variable and 40% fixed — inside a single mortgage. I used that structure on property number five and it let me hedge without doubling my paperwork. It’s a good option if you’re on the fence and don’t want to commit 100% either way.

My bottom line after 15 years of doing this

If your cash flow margin is comfortable and you can absorb a 20-30% payment increase without panic, variable is usually the cheaper path over time, and it has been for most of my loans. If a property is already running lean, or you’re stretching to qualify in the first place, the extra 0.5-0.8% for a fixed rate is cheap insurance against a bad decade. Neither choice is wrong — what’s wrong is not running the stress test before you sign.

That’s the approach I use across all 9 of my properties: match the loan type to how much shock each individual property’s cash flow can actually absorb, not to whatever rate looks best on the flyer.

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