Don't Pay Off Your 0.5% Mortgage!: Asset Management in the Age of Inflation

Serious Japanese people tend to think, "Debts should be paid off quickly." However, current variable interest rates at Japanese net banks are at an abnormally low level globally, around 0.3% to 0.5%.

In this environment, making prepayments must be called a "mistake" from a financial perspective.

The Problem: Value of Money and Opportunity Loss

Suppose you prepay 1 million yen on your mortgage. If the interest rate is 0.5%, the interest you save annually is only 5,000 yen.

On the other hand, suppose you invest that 1 million yen in global equities (All Country) through the new NISA, earning an average annual return of 5%. The profit is 50,000 yen.

The difference is 45,000 yen. This is "opportunity loss."

The Pain: Inflation Melts Debt

Inflation has started in Japan too. As prices rise, the value of cash decreases, but the value of debt also effectively decreases.

Continuing to borrow money at a 0.5% interest rate while converting your cash on hand into inflation-resistant assets (stocks or real estate) is the strongest inflation hedge (defensive measure) an individual can take.

Rushing to repay means throwing away this hedge yourself.

The Solution: "Accumulating" Instead of Repaying

The strategy is simple.

1. Pay only the "scheduled repayment (monthly minimum)" for your mortgage.
2. Direct the funds you intended for prepayment into index funds in the New NISA.
3. In 15 or 20 years, if interest rates skyrocket, you can simply sell part of the accumulated investment trusts and repay in a lump sum.

Keeping liquidity (assets that can be converted to cash) on hand is true risk management.

📱 Verification with Amorti

Paradoxically, let's confirm that the effect of prepayment is "low."

1. Set the interest rate to 0.4% in AmortiApp.
2. Simulate a prepayment of 1 million yen.
3. You will be surprised by how small the "Total Interest Saved" is.

Look at this number and rest assured that "I don't need to pay this back." Then, put that money into investments.

Fully utilize the privilege of low interest rates.

Confirm Low Interest Savings