Flat 35 or Variable Rate? Making the Correct Choice in 2025

In the Japanese mortgage market, borrowers face a classic dilemma: the ultra-low interest rates of Variable Rate loans (often below 0.3%) versus the long-term security of Flat 35 (fixed for 35 years).

1. The Case for Variable Rates

Variable rates in Japan have been historically low due to the BOJ's monetary policy. Banks compete aggressively, offering rates as low as 0.29% - 0.475%.

Advantages

• Lowest Monthly Payment: Immediate benefit to your monthly cash flow.
• 125% Rule: Most variable loans include a clause stating that monthly payments cannot increase by more than 25% every 5 years, even if interest rates skyrocket (though deferred interest accumulates).

Risks

• Rising Rates: If the BOJ raises rates, your payment goes up.
• Stress: You must constantly monitor the economy.

2. The Case for Flat 35

Flat 35 is a government-backed loan provided by the Japan Housing Finance Agency.

Advantages

• Security: Interest rate is fixed for the entire 35 years. Peace of mind against inflation.
• Support: Often available to freelancers or those with non-traditional employment.
• Quality housing: often requires the property to meet specific earthquake resistance and energy efficiency standards.

Risks

• Higher Cost: Initial rate is approx. 1.8% - 1.9%, significantly higher than variable options.

Verdict

If you value cash flow today and can handle risk, variable is the winner. If you prioritize peace of mind and plan to stay in the home forever, Flat 35 is the safest insurance.