Demand grows for housing loans of up to 50 years in Japan

With housing prices continuing to soar, as illustrated by the average price of newly built condominiums in central Tokyo's densely populated 23 wards now exceeding 100 million yen, a growing number of homebuyers appear to be opting for superlong-term loans in an effort to keep their monthly payments at manageable levels.

Housing loans with repayment periods of up to 50 years are being offered mainly by regional and online banks.

By lowering the monthly repayment burden, these new long-term loans allow borrowers to purchase properties that would be unaffordable under a 35-year mortgage.

According to the Japan Housing Finance Agency, a survey conducted in April found that 25.5 pct of respondents had taken out housing loans with terms between 35 and 50 years.

Online lender PayPay Bank began offering housing loans with terms of up to 50 years in July.

According to bank officials, about half of recent applicants have chosen loans longer than 35 years.

As many lenders, including PayPay Bank, require borrowers to be under 80 years old at the time of final repayment, most users are in their 20s or early 30s.

But extending the borrowing period on a fixed-rate loan usually means paying a higher interest rate and, consequently, a larger total repayment.

At SBI Sumishin Net Bank, the first online bank to offer housing loans with a maximum repayment period of 50 years, if customers purchase a 50-million-yen property with a 50-year loan instead of a 35-year loan, their monthly repayments will decrease by about 32,000 yen.

On the other hand, the total amount repaid over the life of the loan will be about 6.23 million yen higher.

Nevertheless, the bank says the superlong-term loan has been "well received, largely because it can be covered by group credit life insurance that matches the length of the borrowing period."

Under this insurance, outstanding repayments are waived upon the borrower's death.

The bank expects demand for the loan product to remain roughly at current levels going forward.

Due to soaring property prices and expectations of higher interest rates over the medium term, some people are rushing to buy homes, worried that their future mortgage payments will rise further if they wait longer.

A household survey by the internal affairs ministry showed that the homeownership rate among households of two or more people headed by someone aged 29 or younger reached 41.4 pct in 2024, more than double the level recorded 20 years earlier.

According to Tokyo-based online real estate broker Terass Inc., people in their 20s are increasingly focused on building their assets, and many are buying properties with the intention of selling them a few years later.

"The conventional notion of (buying) a forever home is starting to crumble," a company official said.

Some buyers take out long-term housing loans so that their monthly repayments are lower than the rent they would pay for a similar rental property, allowing them to keep more cash on hand.

"An increasing number of people believe that they can borrow at low interest rates through housing loans and invest the surplus in instruments such as NISA to earn far higher returns," the official said.

NISA, or Nippon Individual Savings Account, is a tax-exempt program for relatively small investments.

One risk, however, is that when the property is sold a few years later, the proceeds may be lower than the outstanding mortgage balance, leaving the borrower with remaining debt.

Many people plan to make early repayments while they are still working, but financial planner Yukari Kawabuchi noted that "rising living costs are making it increasingly difficult for them to follow through on those plans."

"The longer the loan term, the higher the probability that unforeseen events will occur," Kawabuchi said.

Therefore, before signing a housing loan contract, borrowers should review the projected loan balance at retirement and develop a realistic repayment plan.

Effective planning includes confirming expected pensions and retirement benefits, as well as thinking through possible working arrangements after retirement, experts say.