Nine rental properties means nine different loan decisions, and I have gone both ways more than once. On my third property I locked in a 35-year fixed rate at 2.1 percent because I was nervous about my cash flow. On my seventh, I took a variable rate starting at 0.6 percent and it has saved me roughly 380,000 yen a year ever since. Neither choice was wrong. The trick is knowing which situation calls for which loan, and I have built a fairly simple process for figuring that out before I sign anything.
This is not theoretical for me. I still service six mortgages and two renovation loans across my portfolio, and I refinance or restructure something almost every year. Here is exactly how I think it through.
What a Fixed Rate Loan Actually Locks In
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A fixed rate loan freezes your interest rate for the life of the loan, or for a set period like 10 or 20 years depending on the product. The appeal is obvious: your monthly payment on a 30,000,000 yen loan stays the same whether the Bank of Japan raises rates next year or in 15 years. I used a full 35-year fixed rate on my third property specifically because I had just quit my salaried job and wanted one less variable in my life while I stabilized my rental income. The trade-off is cost. Fixed rates in my experience run 0.5 to 1.2 percentage points higher than variable rates at signing, which on a 25,000,000 yen loan can mean paying an extra 150,000 to 300,000 yen per year in the early years.
Why I Have Used Variable Rate Loans on Six of My Properties
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Six of my nine mortgages are variable rate, and that is not an accident. Japan has kept rates near zero for most of the 15 years I have been doing this, so variable loans have simply been cheaper the whole time. My typical variable rate loan starts around 0.5 to 0.7 percent, reviewed every six months, with payment amounts usually only adjustable every five years under the standard cap rules most banks use here. That five-year buffer matters a lot to me, because it means even if rates climb, my actual monthly payment cannot jump overnight. I have ridden out two rate review cycles so far without my payment changing at all.
The Break-Even Math I Run Before Signing
Before I choose, I do a rough calculation: how many years would it take for the fixed loans extra cost to be worth the protection it buys me? On a typical 28,000,000 yen loan with a 0.6 percentage point gap between fixed and variable, that gap costs me about 168,000 yen a year at first. I ask myself whether I would still own the property, and still be exposed to that loan, in 10 years. If the answer is yes and my cash reserves are thin, I lean fixed. If I plan to sell within 5 to 8 years or I already hold three months of mortgage payments in reserve per property, I lean variable. This single question has guided at least five of my nine financing decisions.
My Checklist Before Choosing
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Every time I sit down with a loan officer now, I run through the same short list. It keeps me from getting talked into whatever the bank happens to be pushing that month.
- How many years do I realistically expect to hold this property before selling or paying it off
- What is my current interest rate gap between the fixed and variable options being offered
- Do I have at least 3 months of payments in cash reserve for this specific property
- What is my total loan-to-value ratio across all nine properties combined, not just this one
- Can I absorb a 1 percentage point rate increase on this loan without touching rent income from other units
A Renovation Loan That Changed My Approach
Six years ago I took out a 4,500,000 yen renovation loan to redo the plumbing and kitchen in one of my older units, a 45 square meter apartment that needed real work before I could raise the rent. I chose a variable rate for that one without hesitation, because the loan term was only 7 years and the amount was small relative to my overall exposure. That decision worked out well; I paid it off in 5 years and the total interest came to under 210,000 yen. That experience taught me that loan size and term length matter just as much as the headline rate when deciding between fixed and variable.
How I Split My Portfolio Between the Two
Looking at my nine properties today, three carry fixed rate loans and six carry variable. That is roughly a 33/67 split, and it is deliberate. The three fixed loans are on properties I bought early, when my income was less predictable and I wanted certainty above all else. The six variable loans are on properties bought once I had a stable base of rental income covering my fixed costs, which gave me room to absorb some rate risk in exchange for lower payments. I check this balance once a year, usually in April when I review all nine properties financial statements together, and I have adjusted it twice through refinancing when the math shifted enough to justify the paperwork.
There is no single right answer here, only the right answer for your own cash position and how long you plan to hold the property. That is the framework I use across all 9 of my properties, and it has kept me from losing sleep over interest rate headlines for 15 years running.
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My step-by-step process management template that cut renovation costs by 60% across 3 apartment buildings over 15 years.
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15 years of landlord experience u00b7 3 apartment buildings u00b7 DIY renovations that saved millions of yen. Browse all articles at diytosan.com
