Housing loans in Japan
In Japan, many people consider using housing loans when purchasing a house. Various types of housing loan services are provided by many financial institutions. Here we summarize the types and features of housing loans in Japan as basic knowledge. Understanding the differences between each type of loan will enable you to take out a loan that meets your needs and financial condition.
· Types of housing loans
· Types of interest rates for housing loans
· Repayment of housing loans
· Procedures for taking out a housing loan
Types of housing loans
There are mainly two types of housing loans in Japan: public loans and private loans. Public loans are loans such as Japan Housing Finance Agency (“JHF”) loans , property accumulation savings scheme-tied housing loans and local authority loans. Private loans include loans such as those provided by banks, shinkin banks, credit unions and labor banks, loans for members of JA (Japan Agricultural Cooperatives), loans for life insurance purchasers, non-bank loans and Flat 35 (a long-term fixed-rate housing loan using securitization of housing bonds by JHF).
Types of interest rates for housing loans
There are mainly three types of interest rates for Japanese housing loans as below.
1. 1) Floating interest rate
An interest rate linked to the market interest rate is applied. The interest rate is reviewed monthly or twice a year (April and October). After borrowing, the borrower can change the interest rate type.
- The interest rate is lower compared to other types.
- The amount of repayment may decrease if the interest rate declines in the future.
- Borrowers can change interest rate types by watching interest rate movements.
- The amount of repayment may increase if the interest rate rises.
- The future repayment amount is not fixed at the time of borrowing.
1. 2) Fixed interest rate throughout the loan term
The fixed interest rate determined at the time of contract is applied throughout the loan term. There are two types: a type with a fixed interest rate throughout the entire loan term and a type which the interest rate changes during the loan term.
- It is easier to develop a long-term life plan as the total amount of repayment and its schedule are fixed at the time of the contract.
- If the contract is made during the low interest rate period, the benefit of a low interest rate can be applied throughout the entire loan term.
- The interest rate is higher compared to other types.
- If the contract is made during the high interest rate period, the repayment must be made with a high interest rate throughout the entire loan term.
1. 3) Hybrid adjustable interest rate
A loan for which a fixed interest rate is applied for a certain period of the loan term, and then to choose the interest rate type (floating or fixed) for the rest of the period. When choosing the interest rate type, contents of the contract differ according to each loan product, so care must be taken.
- The amount of repayment for a certain period is fixed.
- The amount of repayment may decrease if the interest rate declines after the fixed interest rate period, even though the contract was made during the high interest rate period.
- The amount of repayment after the fixed interest rate period is not fixed at the time of borrowing.
- The amount of repayment may increase if the interest rate rises after the fixed interest rate period, even though the contract was made during the low interest rate period.
Repayment of housing loans
There are mainly two types of repayments for Japanese housing loans as below.
1. 1) Principal and interest equal repayment
A general repayment method for private housing loans, with fixed repayment amount (principal plus interest) for each payment.
· - It is easier to develop a long-term life plan as the amount of each repayment is fixed.
· - The amount of repayment at the beginning is lower compared to the principal equal payment with less burden.
· - The total amount of repayment will be larger than the principal equal payment as the principal decreases slower, resulting in a larger amount to be used for interest payment.
1. 2) Principal equal payment
A repayment method with a fixed principal amount per repayment added with interest on the principal balance. Both the principal and interest equal repayment and principal equal payment are available when using Flat 35 and property accumulation savings scheme-tied housing loans.
· - The repayment amount declines as the repayment is made.
· - The loan balance decreases faster compared to the principal and interest equal repayment, resulting in less total repayment amount.
· - The amount of interest payment at the beginning is larger, causing a high burden.
· - The higher repayment amount (compared to the principal and interest equal repayment) at the beginning requires a large amount of monthly income, which may result in a decrease of the loan amount.
* Monthly repayment and extra repayment at bonus time
When the repayment is made using either of the above methods 1) or 2), there are two ways of repayment. One is to make a monthly repayment only. The other is making an extra repayment at bonus time, in addition to the monthly repayment. For Flat 35 and property accumulation savings scheme-tied housing loans by JHF, extra repayment at bonus time can be applied within 40% of the total amount of the loan.
* Partial prepayment
When the repayment is made using either of the above methods 1) or 2), the borrower can shorten the repayment period or reduce the amount of the monthly repayment made thereafter by making early repayments for a certain amount of the loan balance. This can result in reducing the total amount of interest payment. Similar to prepayment penalties in loan agreements overseas, there are also cases where fees are required to make prepayment in Japan. The amount of fees differs according to financial institutions, types of loans and prepayment methods. It is usually from a few thousand yen to 30,000 yen per prepayment (there are also cases that require no fees). If you plan to make prepayments frequently in the future, it is necessary to take these prepayment fees into consideration.
Procedures for taking out a housing loan
After determining a lending financial institution, the amount of the loan, repayment period, repayment method and type of interest rate, etc., you will proceed with the actual procedures for the loan agreement application. Procedures differ according to the financial institutions you use. Here we summarize the general procedures required when applying for a housing loan at a private bank.
1) Preliminary review application
Apply for a preliminary review after consultation with the lending financial institution regarding details of the loan.
2) Preliminary review
Before forming a purchase agreement, a preliminary review is conducted by the lending financial institution to examine the borrower’s age at the time of the final repayment, the age at the time of borrowing, repayment burden ratio, years of service at the company he/she works, annual income, health condition and the collateral value of the property to be purchased, etc.
3) Submission of application documents
After passing the preliminary review, the borrower will fill in and affix seals to application forms for loans and “group credit life insurance.” Along with other necessary documents, all the prepared documents are to be submitted at the lending financial institution. “Group credit life insurance” is a life insurance that repays the loan on behalf of the borrower in the event of the loan borrower’s death (or designation of severe disability). Most housing loans require this insurance, but it is optional when using Flat 35. The terms for the insurance are mainly the health condition of the subscriber. A person who has been hospitalized, had surgery or received medication for hypertension or hyperlipidemia, etc., in the past five years may not be able to purchase this insurance.
4) Final review
After the purchase agreement is formed, a final review is conducted by a guarantee company. The scale and business conditions of the borrower’s workplace, whether the borrower is able to purchase the group credit life insurance and other matters will be examined in addition to the standard review items of the preliminary review.
5) Notice of the result of final review and conditions, etc.
After passing the final review, the borrower must complete some procedures such as preparing the necessary documents for the loan agreement, applying for fire insurance, requesting registration procedures to a judicial scrivener in charge and opening an account for repayment.
6) Forming the housing loan agreement
The housing loan agreement is formed after affixing seals to the loan agreement documents.
7) Loan granted
The loaned amount will be paid to a designated account based on the agreement, etc.
8) Registration procedures
The purchase agreement is formed at the completion of registration for the transfer of ownership and the transfer of the property.
Housing loans for foreign individuals
There seems to be many foreign individuals who wish to purchase Japanese properties, but do not have enough funds on hand and wish to use housing loans. “Are there any Japanese financial institutions that provide loans to a foreign individual?” “Is it possible for a non-resident to borrow funds?” “Is it OK if I cannot speak Japanese?” Here we present information on housing loans for foreign individuals so that it will benefit those who are in need of tips and advice on these issues.
· Can foreign individuals take out housing loans?
· General requirements for foreign individuals to take out housing loans
· Example of banks providing housing loans for foreign individuals
· Housing loan procedures for foreign individuals
· If you are denied housing loans offered by Japanese Financial Institutions
Can foreign individuals take out housing loans?
Before 1998, foreign individuals needed to obtain permission to purchase real estates in Japan. This was to control foreign purchases for investment purposes. But since 1998, foreign individuals have become able to freely purchase Japanese real estate properties. In the past, those foreign individuals who wanted to take out housing loans to prepare funds required for such purchases, except for people who have the right of permanent residence in Japan or foreign individuals who have a Japanese spouse, could only take out housing loans from a limited number of financial institutions. The situation was even worse if the housing loan was made for purposes of investment instead of a residential property.
However, with the rising demands, the number of domestic and foreign financial institutions that provide housing loans for foreign individuals have been increasing. It is possible for foreign individuals to take out housing loans if the requirements below are satisfied to pass the screening and the right and suitable financial institution is selected.
General requirements for foreign individuals to take out housing loans
General requirements that a loan applicant needs to satisfy are as follows. However, some requirements may not be needed depending on the financial institution or the person in charge.
- Has a right of permanent residence in Japan, is applying for a right of permanent residence in Japan or has a Japanese spouse.
- Is a full-time salaried worker. (Not a contract worker)
- Has a stable income.
- Has at least three years of working experience in Japan (in the same company is preferred), or has been self-employed in Japan for three years or more.
- Is purchasing the property for residential purpose and not as a second home, etc.
- Is able to communicate in Japanese at a normal level, and is able to write his/her name and address in Japanese.
- Is able to provide Gensen-choshu-hyo (withholding certificate) and Kazei-shoumei-sho (taxation certificate) (or Kakutei-shinkoku-sho (final return) for those who are self-employed) issued over the past three years.
- Is aged 20 or over and under 65 at the time of application, and is younger than 80 (or 75 in some cases) on maturity.
If the applicant does not have a right of permanent residence in Japan, the following requirements may need to be satisfied.
- Has been living in Japan for seven years or more.
- Can make a down payment of 20%.
Examples of banks providing housing loans for foreign individuals
- Bank of China
Chinese (Simplified) website: https://www.bankofchina.com/jp/pbservice/pb2/201301/t20130111_2167377.html
The Bank of China provides housing loans for individuals. The service is mainly provided for Japanese and Chinese individuals who have a status of residence in Japan. Applications can be made for funds for purchasing residential and investment purpose properties, as well as for renovations and repair costs. In general, up to a maximum of 70% of the collateral value or purchase price, whichever is the lower, can be loaned. The repayment period can be fixed at up to 20 years. Although the service also targets non-residents who do not have a status of residence in Japan, they are required to open a specified bank account, and will need a down payment of 50% or more in principle. The repayment period can be fixed at up to 15 years.
https://www.orix.com.hk/en/consumer-finance/japan-property-mortgage-loan/ (For Hong Kong citizens or Hong Kong incorporated company)
ORIX provides loans for Hong Kong ID holder or
Hong Kong incorporated company. Residential, retail and office buildings for self-use or investment that are located in Tokyo or Osaka area are eligible. The property price must be ¥30 million or above and the loan amount starts from ¥20 million. The repayment period can be fixed at up to 15 years.
- SURUGA Bank
https://www.surugabank.co.jp/surugabank/kojin/service/dream_j/The service targets all foreign individuals regardless of their nationalities. The loan amount ranges between ¥1 million to ¥100 million. The repayment period is not less than one year and not more than 35 years. The service may be applied for the purchase of a house or a land for self-use, expenses for extending or refurbishing of the house, roll over of a housing loan already in use, or other expenses for new construction or change of residence, etc. The service is offered only in floating interest rate plans.
- Shinsei Bank
The service is available for purchasing a detached house or an apartment (including second hand properties), building a new house on owned land, and refinancing a mortgage from another financial institution. It cannot be used for renovations or buying land only. The loan amount can range from ¥5 million to ¥100 million. The loan period can range from 5 years to 35 years. The service is available in floating interest rate plans, initially fixed interest rate plans, and long-term fixed interest rate plans.
- SMBC Trust Bank
The service is available for building or purchasing a real estate property for the use of the applicant or his/her family, or for refinancing a mortgage from another financial institution. The loan amount can range between ¥10 million and ¥500 million and the loan period can range from 1 to 35 years. They offer plans of floating interest rate loans and fixed interest rate loans. In addition to the foregoing, they also offer loans for investment properties, and in order to receive such service, the applicant must have a stable income of ¥7 million or more, which is not required for loans for residence purposes. The loan amount can range from ¥5 million to ¥100 million and the loan period can range from 1 to 30 years for the investment property loan. This type of loan is only offered as a fixed interest rate plan.
- The Tokyo Star Bank
(Website available in Japanese, English and Chinese (traditional) only)
The Tokyo Star Bank offers a real estate investment loan for non-residents of Japan who lives in Taiwan with a Taiwanese passport. The service is available for purchasing or building new and second hand condominiums, apartments, commercial buildings, stores, offices or detached houses as investment properties in Japan. The service can also be used to purchase or build new or second-hand condominiums and housing as a second home or for the family members to live in. However, the area eligible for the service is designated. The loan amount can range from ¥20 million to ¥500 million and the loan period can range from 1 to 20 years. The service is only offered as a floating interest rate plan.
Note: The above information is based on information provided by each financial institution for the public as of March 23, 2020, and is subject to change. In addition, each institute sets out different requirements for the applicant to take out a housing loan. For such reasons, we advise you to contact each financial institution for accurate details.
If you are denied housing loans offered by Japanese Financial Institutions
The main reason people are denied a housing loan is because the applicant does not have a right of permanent residence and therefore is not approved by a guarantee company. Housing loans are usually provided together with a guarantee company of the same corporate group, and you are required to make a contract with such guarantee company. If you are not able to make a contract with the company, you can otherwise consider a loan plan called a “proper loan,” which does not involve a guarantee company. However, proper loans for property acquisition are only offered by a very limited number of financial institutions, and you will be required to meet various requirements. In addition, interest rates applied for these loans are generally high and you will be required to find joint guarantors. With the above in mind, you have to carefully gather information on, examine and consider the option of using a proper loan.
Apart from the above, you should also consider not using housing loans offered by Japanese financial institutions and finding foreign non-banks or financial institutions in your country that will offer you funds. As foreign non-banks have different screening criteria from Japanese financial institutions, they will be one of the options when you do not meet the housing loan requirements of Japanese financial institutions. Also, if you have a bank account in a financial institution of your country of origin with a certain deposit level, you may be eligible for financing through such institution. In that case, you will need to collect accurate information on, examine and consider such financing, while taking into account foreign exchange rates and other factors.