Last Updated: March 2026
If you’re looking at a variable-rate mortgage in Japan, you need to understand what people often call the Japan 25-5 mortgage rule (sometimes written 25/5)—really two rules: the 5-Year Rule (5年ルール) and the 125% Rule (125%ルール). Together they cushion you from sudden payment jumps when rates rise, but they don’t make the cost disappear. They delay it. I’ve seen borrowers feel safe because their payment didn’t change, then get a shock at the five-year mark or at maturity when deferred interest showed up. This guide explains how both rules work, where the hidden risk is, and how to plan.
Roughly 77% of Japanese mortgage borrowers use variable rates, drawn by rates as low as 0.3–0.5%. After years near zero, the Bank of Japan raised rates in July 2024 and January 2025, so these rules matter for millions of homeowners and anyone taking out a Japan mortgage today.
What Is Japan’s 5-Year Rule (5年ルール)?
The 5-Year Rule (5年ルール, go-nen rūru) is a standard feature of most Japanese variable-rate mortgages: your monthly payment amount stays fixed for about five years even when the interest rate changes. Banks review the rate twice a year (April 1 and October 1); new rates apply from June/July and December/January. Your payment, however, is only recalculated at the end of each five-year period.
As Jeff Wynkoop, a licensed real estate broker (宅地建物取引士), puts it: the 5-year rule is the internal bank policy that for five years after a rate change, the bank keeps the same monthly payment for borrowers. The catch: the split between principal and interest shifts. When rates go up, more of your fixed payment goes to interest and less to principal, so you pay down the loan more slowly—and in extreme cases your payment may not even cover the interest, creating “unpaid interest” (未払利息) that piles up.
The table below illustrates how the allocation changes while the total payment stays the same.
| Rate environment | Payment breakdown |
|---|---|
| Rates stable | ¥60,000 principal + ¥17,875 interest = ¥77,875 |
| Rates increase | ¥45,000 principal + ¥32,875 interest = ¥77,875 |
| Rates spike | ¥25,000 principal + ¥52,875 interest = ¥77,875 |
Warning: The 5-Year Rule doesn’t reduce what you owe; it delays when you pay it. If rates rise a lot, you can owe more at the end of five years than at the start, despite paying on time every month.
What Is the 125% Rule (125%ルール)?
The 125% Rule (125%ルール) caps how much your payment can increase when the five-year period ends and the bank recalculates. Your new payment cannot exceed 125% of what you paid in the previous five-year block. So if you paid ¥100,000 per month in years 1–5, the maximum in years 6–10 is ¥125,000. Any amount the bank would otherwise charge above that is deferred, not waived.
That cap compounds every five years. The next table shows how the cap evolves over time.
| Period | Maximum payment | % of original |
|---|---|---|
| Years 1–5 | ¥100,000 | 100% |
| Years 6–10 | ¥125,000 | 125% |
| Years 11–15 | ¥156,250 | 156% |
| Years 16–20 | ¥195,313 | 195% |
| Years 21–25 | ¥244,141 | 244% |
So even if rates would justify ¥200,000 in year 6, you only pay ¥125,000; the rest is deferred and can surface as unpaid interest or a higher balance later.
How the 5-Year and 125% Rules Work Together
Together, the 5-Year and 125% rules give you two layers of protection: first, your payment doesn’t change for five years despite rate moves; second, when it is recalculated, the increase is capped at 25%. In the short term that’s real stability. A borrower whose rate doubles might see no change in their monthly budget for years. The downside is that this is a timing mechanism—costs are pushed into the future. If rates stay high, you can end up with a large lump sum at maturity (remaining principal plus all accumulated unpaid interest). I didn’t fully appreciate that until I ran the numbers for a friend who’d had a variable loan for 15 years; the “savings” from the low initial payment were largely offset by the deferred interest that had to be paid at the end.
The sequence in practice: months 1–60 at the original payment; twice a year the bank adjusts the rate internally; as rates rise, the interest portion grows and the principal portion shrinks; at year 5 a new payment is set, capped at 125% of the previous one; that new amount then holds for the next five years, and the cycle repeats until the loan ends.
The Hidden Risk: Unpaid Interest (未払利息)
What many English-language guides skip is unpaid interest (未払利息, miharai risoku). If rates rise enough, your capped payment may not cover even the interest due each month. The shortfall is unpaid interest. It doesn’t compound (you’re not charged interest on it), but it doesn’t go away—Japanese mortgage law typically requires that any remaining principal and unpaid interest be repaid in a lump sum at maturity. So you can face a large final payment that people don’t expect.
For a ¥30 million loan starting at 0.5%, the next table shows how the allocation and unpaid interest can look as rates rise.
| Scenario | Monthly payment | Interest due | Principal paid | Unpaid interest |
|---|---|---|---|---|
| Original 0.5% | ¥77,875 | ¥12,500 | ¥65,375 | ¥0 |
| Rate 2.5% | ¥77,875 | ¥62,500 | ¥15,375 | ¥0 |
| Rate 4% | ¥77,875 | ¥100,000 | ¥0 | ¥22,125/month |
In the 4% case you’re paying ¥77,875 but ¥100,000 interest accrues; ¥22,125 per month becomes unpaid interest. At loan end you must pay off principal plus that accumulated unpaid interest.
Real Payment Examples Under the Japan 25-5 Mortgage Rule
To see what happens at different rates, here are example monthly payments for a ¥30 million, 35-year loan. SBI Shinsei Bank’s simulation calculator is a good reference for your own numbers.
| Interest rate | Monthly payment | Change from 0.5% |
|---|---|---|
| 0.5% (typical 2024) | ¥77,875 | — |
| 1.0% | ¥83,709 | +7.5% |
| 1.5% | ¥89,804 | +15.3% |
| 2.0% | ¥96,162 | +23.5% |
| 2.5% | ¥102,780 | +32.0% |
| 3.0% | ¥109,654 | +40.8% |
Under the 125% Rule, the first recalculation would cap the new payment at 125% of the original (e.g. ¥97,344 if you started at ¥77,875), with any excess deferred. For a ¥50 million, 35-year loan, a variable rate around 0.7% can mean roughly ¥55.8 million total repaid (about ¥5.8 million interest) versus a Flat 35 fixed rate around 1.89% at ¥65.6 million (about ¥15.6 million interest). Variable wins if rates stay low; rate rises quickly eat into that advantage.
Banks That Don’t Follow These Rules
Not every lender applies the 5-Year and 125% rules. If yours doesn’t, your payment can change as soon as the rate changes.
Banks that typically do not apply both rules include SBI Shinsei Bank and Sony Bank—payments adjust with each rate change. Most major city banks (Mizuho, MUFG, SMBC), Tokyo Star Bank, and many regional banks do apply both. Before you sign, ask explicitly: “この変動金利ローンには5年ルールと125%ルールが適用されますか？” (Does this variable-rate loan include the 5-Year Rule and 125% Rule?)
One more nuance: these rules apply to the standard equal principal and interest repayment method (元利均等返済, ganri kintō hensai). If you choose equal principal repayment (元金均等返済, gankin kintō hensai), neither rule applies and your payment moves with the rate immediately.
Variable vs Fixed Rate Mortgages in Japan
Understanding the Japan 25-5 mortgage rule helps you choose between variable and fixed. As of early 2026, variable rates are often 0.3–0.8% after the recent hikes; fixed 10-year and Flat 35 are typically higher (e.g. 1.2–1.6% and 1.47–1.86%). Variable gives lower initial payments and, with the 5-Year and 125% rules, a buffer against sudden jumps—but you take on rate and unpaid-interest risk. Fixed gives certainty and no unpaid-interest buildup but at a higher cost. For foreigners, the first question is often whether you can get a mortgage at all; see our mortgage without PR guide for that. Then, if you have the choice, consider your timeline and risk tolerance: variable can suit shorter holding periods and people with a buffer; fixed can suit long-term holders who want predictability. Don’t forget hidden costs and property tax when budgeting.
Impact of BOJ Rate Hikes (2024–2025)
The Bank of Japan’s decisions directly affect variable mortgage rates. After keeping rates near zero for years, the BOJ moved to 0.25% in July 2024 and 0.50% in January 2025. Major banks raised the short-term prime rate (e.g. from 1.475% to 1.625% in September 2024). For existing borrowers under the 5-Year Rule, the impact is building internally until their next five-year recalculation; new borrowers are seeing variable rates around 0.5–0.8% instead of the 0.27–0.35% common a couple of years ago.
Which Option Is Better for Foreigners?
There’s no single answer. Consider variable if you have a solid cash buffer (e.g. 6–12 months of potential payment increase), plan to sell or refinance within 5–10 years, and are comfortable tracking rates—and if your bank applies both rules. Consider fixed if you need predictable payments, plan to hold 20+ years, or want to set and forget. Many expats keep 6–12 months of potential payment increase in reserve regardless of which type they choose. For the full picture on buying and financing, see our complete guide to buying property in Japan and beginners’ guide.
FAQ: Japan Variable Mortgage Rules
What is the 25-5 rule in Japan?
The 25-5 rule in Japan refers to two protections on variable-rate mortgages: the 5-Year Rule (5年ルール), which keeps your monthly payment unchanged for about five years even when interest rates change, and the 125% Rule (125%ルール), which caps any payment increase at 125% of the previous five-year block when the bank recalculates. Together they smooth payment shocks but delay rather than eliminate cost—unpaid interest can build if rates rise sharply.
What happens to my mortgage payment when the BOJ raises interest rates?
With the 5-Year Rule, your payment amount stays the same even when rates rise—but more goes to interest and less to principal. At the next five-year recalculation, your payment can go up to 125% of the previous amount. Banks that don’t follow these rules (such as SBI Shinsei Bank) change your payment as soon as the rate changes.
Can I lose my home because of unpaid interest?
Unpaid interest alone doesn’t trigger foreclosure as long as you keep making the contracted payments. At maturity, however, you must pay remaining principal plus all accumulated unpaid interest in one go. If you can’t, you’d need to refinance, sell, or risk default. The important thing is to track your loan balance over the term and plan for that potential lump sum.
Should foreigners choose variable or fixed rate in Japan?
It depends on your situation. Variable offers lower initial payments but more uncertainty; fixed offers predictability at higher cost. Consider how long you’ll hold the property, how much payment increase you could absorb, and whether you have access to Japanese mortgages at all—many foreigners without PR have limited options, so the first step is often our mortgage without PR guide.
Which Japanese banks don’t follow the 5-Year and 125% rules?
SBI Shinsei Bank and Sony Bank are the best-known banks that don’t apply these rules; your payment moves with each rate change. Most major city banks and many regional banks do apply both. Confirm with your specific lender and product, as terms can differ.
How much will my payment go up if rates rise to 2%?
On a ¥30 million, 35-year loan, the payment would go from about ¥77,875 at 0.5% to about ¥96,162 at 2%—a 23.5% increase. With the 125% Rule, the first recalculation would cap the new payment at 125% of the original (e.g. ¥97,344), with any extra deferred as unpaid interest. Without the rules, you’d pay the full new amount from the next adjustment.
Understanding Japanese Mortgage Terminology
When talking to banks, these terms help:
| Japanese | Romaji | English |
|---|---|---|
| 5年ルール | Go-nen rūru | 5-Year Rule |
| 125%ルール | Hyaku nijū-go pāsento rūru | 125% Rule |
| 未払利息 | Miharai risoku | Unpaid interest |
| 変動金利 | Hendō kinri | Variable rate |
| 固定金利 | Kotei kinri | Fixed rate |
| 元利均等返済 | Ganri kintō hensai | Equal principal and interest |
| 元金均等返済 | Gankin kintō hensai | Equal principal |
| 短期プライムレート | Tanki puraimu rēto | Short-term prime rate |
Official Resources
- Japan Housing Finance Agency — Flat 35 and government-backed lending
- Bank of Japan — Policy rate and announcements
- SBI Shinsei Bank Housing Column — Detailed Japanese explanation of the rules
Next Steps
Check whether your bank applies the 5-Year and 125% rules, run scenarios with a bank simulator, and keep a buffer for possible payment increases. Factor in hidden costs and property tax so your budget is complete. The Japan 25-5 mortgage rule gives real short-term protection, but it defers cost rather than removing it. With that in mind, you can use variable-rate mortgages more safely and avoid the surprises that catch unprepared borrowers.
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