What Financial Options are Available to me?
This is a question we receive a lot from potential buyers both Japanese and non-Japanese. Majority of real estate purchases require some sort of financing, but in Japan the information for the most part most in our opinion may be too detailed making it confusing. We will try to keep our information as simple as possible.
Typically if you were to inquire on financing options for real estate purchases as a foreign national, the first questions which may be asked is “do you have permanent residency.” The common misconception may be, as a foreign national, you cannot take out a mortgage without permanent residency. This common misconception is not true, but having permanent residency does broaden your options and the loan to value (percent you may borrow against the purchase price) can be greater.
There are cases where the borrower can receive up to 100% of the purchase price.
This will be a two part series, breaking some of the financing options which are available.
Part 1 will breakdown the options in general, where part 2 will focus on foreigner friendly and or financing options for non-remanent residence holders.
Note: All interests rates will be current as of February 2021 for 35 year loans.
The “Mega Bank” or the Big Four in financial institutions give borrowers the “best” financial terms when mortgages are taken out for home purchases. Typically will give the borrower the lowest interest rates. These four banks can be found all over Japan with multiple branches in your city.
The Big Four
- Mitsubishi UFJ Bank (三菱UFJ銀行) UFJ for short
- Sumitomo Mitsui Banking Corporation (三井住友銀行) SMBC for short
- Mizuho Bank (みずほ銀行)
- Resona Bank (りそな銀行)
These major banks will advertise interest rates as low as 0.475% floating or variable interest rates. These lower rates are what these banks call “Internet Loans,” which mean the loan application, consultation are to be done online, rather than going to the “Loan Plaza” to consult in person. This interest rate can be found for all four major banks.
For those who want more of a face to face consultation, Mitsubishi UFJ Bank’s floating interest rate is as low as 0.575%.
Note: Resona Bank is technically not considered one of the “Mega Banks” in Japan, but does have a large national presence.
Unlike “Mega Banks, local banks will be “local” to where you live. In japanese, 地方銀行 will not have branches all over Japan, but will typically have branches outside of their origin city. For example, Kyoto Bank will have a branch in Osaka City.
Here the list of Local Banks (地方銀行) in the Kansai Area (近畿地方)
- Shiga Bank (滋賀銀行) Shiga
- Kyoto Bank (京都銀行) Kyoto
- Kansai Mirai Bank (関西みらい銀行) Osaka
- Ikeda Senshu Bank (池田泉州銀行) Osaka
- Nanto Bank (南都銀行) Nara
- Kiyo Bank (紀陽銀行) Wakayama
- Tajima Bank (但馬銀行) Hyogo
Just as the “Mega Banks,” these local banks will advertise low floating or variable interest rates below 1%. The lowest can be found with Kansai Mirai Bank where they advertise rates as low as 0.595%, but with the majority advertising at 0.775%.
Other well known banks which fall under the local bank’s umbrella are Bank of China (Okayama) and Suruga Bank (Shizuoka).
Note: There is a “second tier” of local banks such as Tokyo Star Bank (Tokyo), Bank of Nagoya (Aichi), Minato Bank (Hyogo), and Tomato Bank (Okayama) to name a few.
Shinkin Bank (Credit Treasury)
Credit Treasuries are regional banks which are friendly to small to medium sized corporations, and to local residents. They serve similarly to Credit Unions, but non-members are able to use their financial services. For this instance, non-members can apply for a housing loan without being a member of the bank first.
There are a total of 30 Credit Treasuries in the Kansai Region, where we will highlight a few in our list below.
- Kyoto Shinkin Bank (京都信用金庫) Kyoto
- Osaka Shinkin Bank (大阪信金金庫) Osaka
- Amagasaki Shinkin Bank (尼崎信用金庫) Hyogo
- Banshu Shinkin Bank (播州信用金庫) Hyogo
- Yamato Shinkin Bank (大和信用金庫) Nara
- Kinokuni Shinkin Bank (きのくに信用金庫) Wakayama
Typically the floating or variable interests rates found at Shinkin Banks hover around 1%, as low as 0.575%. Granted financing options provided at these banks are for the people who live locally.
For example, Osaka Shinkin Bank, their financial services are available to those who live in Osaka Prefecture. Currently their floating interest rate is 0.975%.
Note: The kanji 金庫 is the word for safe or in this instance bank safe.
Other Financial Institutions
Just for fun, here is a list of other types of financial institutions you can find in Japan.
- Credit Unions (信用組合)
- Labor Banks (労働金庫)
- Trust Banks (信託銀行)
- Internet Banks (インターネット専業銀行)
These other options are available to those who are looking at the unconventional route to finance their home. Typically, Internet Banks provide the lowest floating interest rates at around 4%, with Japan Internet Bank (ジャパンネット銀行) currently at 0.38%.
Trust Banks is another option. The “Mega Banks” do have trusts as a financial instrument within their own group or holdings. In part 2, we will go into detail the mortgage option(s) provided by SMBC Prestia Trust Bank (SMBC信託銀行).
Thus far we have only provided information for floating or variable interest rates. Yes, they may seem extremely attractive because of such a low percentage, but there may come a day when the interest rate will go up. Possibly the fixed interest rate is more appealing and obviously easier to plan your future financials.
Note: In the future post we may break down how the banks determine and or calculate the increase in rates for variable interest rates.
Flat 35 (フラット35) is a government-backed mortgage, backed by the Japan Housing Finance Agency (住宅金融支援機構), with low fixed interest rates. Flat 35 was first made available to the public in October 2003, where private financial institutions were able to provide a long term fixed rate financial product for home buyers. In the past, conventional housing loans were fixed up to 10 years after which became a variable interest rate. Current day, banks as those mentioned above still have the fixed 10 year product, but also provide financial terms up to 20 years. Some banks provide financial terms from 21 to 25, 26 to 30, 31 to 35 years.
In general, Flat 35 has a loan to value of 90% with a fixed interest rate of 1.32%. There is a financial term where the buyer can borrow over 90% of the purchase price with a fixed rate of 1.58%. The interest rates change every month.
Note: Flat 35 is only available to those who hold Permanent Residency.
In general, these are the mortgage options available to home buyers in Japan. Having Permanent Residency allows you to discuss the potential financing options with all of the banks mentioned above along with Flat 35.
Even those without permanent residency can consult with the financial institutions mentioned above (other than Flat 35). In our experience, the financial terms will be different than those who have permanent residency. Typically, the banks will require a down payment, as low as 20% and as high as 50%, and more often than not the interest rate will be higher.
We are going to take the lazy route and say everything will be on a case by case basis. But we always recommend consulting with your bank first, then possibly looking into other options. There are mortgage brokers in Japan who are open to discussing different financial options at once rather than speaking with each institution individually.
Our mortgage broker typically gives options in the order we wrote above.
Part 2 will focus more so on the foreigner friendly mortgages, and going into detail of those options.
For additional information and or questions, please contact us here