Why Your Borrowing Power Matters Most
When mortgage interest rates fluctuate, one of the most important effects on homebuyers is a change in how much they can borrow. In simple terms:
- When interest rates go up, you can borrow less.
- When interest rates go down, you can borrow more.
This is because lenders determine loan amounts based on how much you can afford to repay each month. A higher rate increases your monthly payments, which in turn lowers the total amount you’re eligible to borrow.
How Much Difference Can a Rate Change Make?
Let’s take an example:
Suppose you want to keep your monthly repayment at ¥150,000, put down no deposit, and take a 35-year loan. Here’s how your maximum borrowing amount changes with different interest rates:
- 0.5% interest: approx. ¥57.7 million
- 1.0% interest: approx. ¥53.1 million
- 2.0% interest: approx. ¥45.2 million
As you can see, even a 1% difference in interest rates can change your borrowing power by several million yen. This directly affects what kind of homes you can consider—higher rates narrow your choices, while lower rates expand them.
How Do Rate Changes Affect Your Household Finances?
When rates go down:
- You may qualify for a larger loan, giving you more options in size or location.
- Monthly payments may become more affordable, leaving more room in your budget.
- If you already have a mortgage, refinancing might reduce your total repayment costs.
When rates go up:
- You may no longer be able to afford the home you originally had in mind.
- Monthly payments increase even if the loan amount stays the same.
- If you’re on a variable-rate mortgage, future repayments may rise unexpectedly.
Is “Low Rates Mean It’s Time to Buy” Really True?
You might’ve heard the advice, “Low interest rates mean now is the time to buy.” But reality is more complex.
Japan has experienced historically low policy rates for many years. Yet housing prices didn’t start rising significantly until well after rates had already dropped.
In other words, lower rates don’t always immediately lead to higher property prices. So basing your buying decision solely on interest rates can be misleading.
Tokyo’s Market Is Driven by Global Capital, Not Just Rates
In cities like Tokyo, property prices are increasingly influenced by global investment trends, especially from overseas investors. These buyers usually purchase with cash or institutional funds—not domestic mortgages—so they’re largely unaffected by Japanese interest rates.
For instance, during periods of yen depreciation, Japanese real estate appears cheaper to foreign investors, driving up demand and prices. Conversely, when global economic conditions worsen, foreign capital may exit the market, causing prices to fall.
This means Tokyo’s housing market is influenced by a mix of interest rates, currency exchange rates, international capital flows, and geopolitical risks. In such environments, interest rates alone are not a reliable indicator of whether it’s a good time to buy.
Interest Rates Influence the Entire Housing Market
Rate changes ripple beyond individual households and affect the market as a whole.
When rates rise:
- Fewer people qualify for loans, reducing demand.
- Cooling demand can help stabilize or even lower overheated property prices.
- Banks may earn more from lending due to wider interest margins.
When rates fall:
- More people can borrow, increasing demand.
- In certain areas, this demand may cause prices to spike.
- Bank profits shrink, and lending criteria may tighten.
Focus on Your Life, Not Just Interest Rates
Yes, mortgage rates are important—especially because they determine how much you can borrow. But they’re hard to predict, and in urban markets like Tokyo, other factors often matter more.
That’s why the most important question isn’t when to buy a home, but why.
What kind of life do you want to build? Does buying a home truly support that vision?
If you anchor your decision in your own life goals rather than interest rate trends, you’re more likely to find a home you won’t regret buying.