Variable or Fixed? How to Choose a Mortgage Rate Type in Japan: The Three Types, the 5-Year and 125% Rules, and a Payment Comparison

The short answer: variable is cheaper today, fixed buys certainty, and the real question is how much change you can absorb

When you take out a mortgage in Japan, you choose a rate type at signing. For more than a decade rates barely moved and variable-rate borrowers rarely regretted it. But the Bank of Japan raised rates twice between June and September 2026, taking the policy rate to around 1.25%, and banks' short-term prime rates have followed, so the cost of a variable loan has started to shift^[8][9][10]. This article does not make the decision for you. It lays out how the three rate types work, what the rates actually are now, what the "5-year rule" and "125% rule" that supposedly protect variable-rate borrowers really do, and a worked example on a 50 million yen loan, so that you can run the numbers yourself.

The three rate types

The Japanese Bankers Association groups mortgage rates into three types^[3]:

• Variable rate (変動金利型): the rate is generally reviewed about every six months. Under equal-instalment repayment (a fixed monthly amount), the payment itself is usually revised only every 5 years; under equal-principal repayment, the payment changes with the rate^[3].
• Fixed-period rate (固定金利期間選択型): you pick a fixed period at signing, typically 2, 3, 5 or 10 years, during which the rate does not change. When it ends, you choose again between variable and another fixed period at the rates of that time^[3].
• Fully fixed rate (全期間固定金利型): the rate never changes over the whole term, so the total repayment is known at signing. The trade-off is that the rate is usually set higher than a variable one^[3].

The Ministry of Land, Infrastructure, Transport and Tourism (MLIT) also counts a fourth category, "securitised loans", which essentially means the Japan Housing Finance Agency's Flat 35 and is in substance a fully fixed loan^[2].

The three types track different benchmarks. Variable rates follow each bank's short-term prime rate, which in turn follows the Bank of Japan's policy rate. Fixed rates of 10 years or more mainly follow long-term government bond yields, which reflect the market's expectations for future hikes and inflation. Bank of Japan statistics show the most common short-term prime rate among major banks was 1.875% in March 2025, rose to 2.125% in February 2026 and to 2.375% in August 2026^[10]. MUFG Bank has announced a further rise to 2.625% from 2 November 2026^[11]. That is 0.75 percentage points in under two years, and it is the environment variable-rate borrowers now face.

What the rates are now (November 2026)

Take MUFG Bank's published rates for new loans in November 2026: the best variable rate is 1.195%, the 10-year fixed rate is 3.89% and the fully fixed rate for 31 to 35 years is 4.50%^[6]. The Japan Housing Finance Agency's Flat 35 (21 to 35 years, loan-to-value of 90% or less) has a lowest November rate of 3.810%^[7]. In other words, the gap between variable and long-term fixed is currently two and a half to three-plus percentage points, and that gap is the root of the dilemma. A wide gap means the market expects rates to keep rising and fixed rates already price that in; but if the hikes ultimately fall short of expectations, those who locked in will have overpaid for insurance.

Most borrowers choose variable: what the data say

A Japan Housing Finance Agency survey conducted in January 2026 among people who actually bought a home with a mortgage between April and September 2025 found that 75.0% chose a variable rate, 14.9% a fixed-period rate and 10.1% a fully fixed rate; the variable share was 4 points lower than in the April 2025 survey^[1]. In the same survey, 73.7% expected mortgage rates to rise over the coming year, while those who said they were somewhat unsure, did not really understand or did not understand at all how much their payment would rise if rates went up added up to 52.0%^[1].

MLIT's survey of private lenders measures by loan value instead. Of new personal mortgages disbursed in fiscal 2024, variable-rate loans made up 83.5%, fixed-period loans 9.5% and securitised loans (Flat 35 and similar) 4.9%, with the variable share down 0.8 points from the previous year^[2]. Among outstanding balances, variable-rate loans accounted for 70.8%^[2]. Both surveys say the same thing: the great majority choose variable, the share has slipped slightly since hikes began, and it is nowhere near reversing.

The 5-year rule and the 125% rule: a buffer, not a waiver

Variable-rate borrowers often hear about two "protective rules". Rakuten Bank's glossary puts it plainly: under the 5-year rule, the monthly payment stays unchanged for 5 years even if the rate rises, and is then reviewed every 5 years; under the 125% rule, the revised payment is capped at 1.25 times the previous one^[4]. Both apply only to equal-instalment repayment; with equal-principal repayment there is no cap and the payment changes immediately with the rate^[4].

Three points matter here. First, the rules do not change the interest rate itself. From the rate-change date, interest accrues at the new rate; the payment stays the same, but more of it goes to interest and less to principal^[3]. Second, if the rate rises far enough, the payment no longer even covers the interest, and the shortfall accumulates as unpaid interest (未払利息) while the principal stops falling^[4]. Third, not every bank or product uses these rules. In its notice on the November rate change, Sumitomo Mitsui Trust Bank explains that for products that revise the payment every 5 years the cap at revision is 125% of the previous payment, whereas products that revise twice a year recalculate the payment whenever the rate changes, using 1 April and 1 October as reference dates^[5]. Check which kind your contract is before you sign.

A worked example: 50 million yen, 35 years, equal instalments

Using MUFG Bank's November rates, here is a simplified calculation for a 50 million yen loan over 35 years with equal instalments (excluding arrangement fees, guarantee fees and group life insurance)^[6]:

• Variable at 1.195%: about 146,000 yen a month, of which the first month's interest is about 50,000 yen; total repayment over 35 years about 61.21 million yen^[6]
• Variable up 0.25 points to 1.445%: about 152,000 yen a month^[6]
• Variable up 0.5 points to 1.695%: about 158,000 yen a month^[6]
• Variable up 1 point to 2.195%: about 171,000 yen a month^[6]
• Flat 35 at 3.810%: about 216,000 yen a month; total repayment about 90.60 million yen^[7]
• 10-year fixed at 3.89%: about 218,000 yen a month (reset at the then-current rate after 10 years)^[6]
• Fully fixed for 31 to 35 years at 4.50%: about 237,000 yen a month; total repayment about 99.38 million yen^[6]

Several facts can be read straight off the table. Each 0.25-point rise in the variable rate adds about 6,000 yen to the monthly payment on this loan; only at roughly 3.5% would interest alone swallow the payment and unpaid interest begin to appear, and that is measured against today's payment^[6]. On the other hand, the fully fixed loan costs about 90,000 yen more every month from day one, and the difference in total interest over 35 years exceeds 30 million yen; only if the variable rate climbs to nearly 4% in the not-too-distant future and stays there does the fixed loan come out cheaper overall^[6]. Each path has its price, which is why there is no answer that fits everyone.

How to choose: three things to look at

First, look at your capacity to absorb change, not at your guess about rates. Work out the monthly payment if the variable rate rises by one point and by two points, and set each against household income. If the payment after a two-point rise is still an acceptable share of income and you hold funds you could use for early repayment when rates climb, the risk of a variable loan is manageable. If a one-point rise already squeezes the budget, the certainty of a fixed rate is worth the premium.

Second, look at how long you will hold the property. The premium on a fully fixed loan is charged for 35 years^[6]. If you expect to sell or repay within ten years, comparing a 10-year fixed rate with a variable rate is enough; there is no need to pay for certainty over the remaining 25 years^[6]. Conversely, households planning to stay long-term on a steady income are best placed to benefit from the peace of mind a fully fixed loan offers.

Third, look at the contract details. Confirm whether the 5-year and 125% rules apply, on what dates the rate is reviewed and the payment adjusted, whether the discount margin shrinks after a fixed period ends, and what early repayment and refinancing cost^[4][5]. These sit in the product description and the contract and are easier to overlook than the headline rate.

Buyers whose income is outside Japan, or who plan to repay from rental income, have one more layer to consider. Rising yen interest rates tend to come with exchange-rate movements, and there is no guarantee rents will keep pace with rates, so a cash-flow projection should include scenarios for both interest rates and currency.

Summary

Japanese mortgages come in variable, fixed-period and fully fixed types. More than seven in ten borrowers choose variable, yet more than half are unsure how a rate rise would affect them^[1]. The 5-year and 125% rules defer higher interest rather than waive it^[4]. At November 2026 rates, each 0.25-point rise adds about 6,000 yen a month to a variable loan, while a fully fixed loan costs about 90,000 yen more a month from the first payment^[6]. If you are considering a purchase in Osaka, please get in touch. We can work through the monthly payment under each rate type and each rate scenario with you, based on the specific property, loan amount and your income.