Should I Pay Off My Mortgage in Japan or Invest Instead?

should i pay off my mortgage early in japan?

Do you own a home in Japan? Maybe you have investment properties or other real estate. Regardless of what kind of property you own, you may now be wondering if you should pay off your real estate loan to get ahead of Japan’s mortgage interest rates. But is this the best call? Or would it be better to invest the money you have now and pay off your mortgage later? Given the factors below, you’ll want to consider your choice carefully.

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Property in Japan and Japanese Mortgage Rates

japan mortgage interest rates vs investment roiWhen initially considering your property purchase in Japan, you likely had a number of considerations impacting your decision. Compared to some other countries, it’s fairly easy to buy a home or other real estate in Japan. There are no special taxes on foreigners and no restrictions on land ownership. And of course, the interest on mortgage rates in Japan is very low compared to other developed countries.

A low mortgage interest rate saves you money on your monthly payments. Essentially, a low interest rate means you have more money in your pocket to do with as you please throughout the life of the loan. However, low interest is obviously not the same as no interest, and you might be considering paying off your mortgage now to save money down the line. But are the benefits of doing so worth the cash required?

What Are the Benefits of Paying Off Your Mortgage in Japan Early?

Before making a decision about whether or not to pay off your mortgage in Japan, it’s important to consider all the angles of doing so. Regardless of your interest rate, making monthly payments on your mortgage is still a drain – often mentally as well as financially. Here are some of the benefits of paying off your mortgage in full early:

  • -Improved Equity: paying off mortgage in japan vs investing moneyThe equity of your property is calculated by subtracting your current mortgage balance from the current value of your property. Having equity in your property in Japan can impact your wealth and your ability to get financial loans for other purposes.

  • -Save on Interest: Paying down the balance of your mortgage in Japan now means you won’t be accruing as much interest over time. This means that in the long run, you won’t be paying as much money. This benefit can have diminished returns on low interest rates if your money could be better invested elsewhere.

  • -Greater Peace of Mind: A mortgage is essentially a debt, and many people feel that having a debt they have to make payments on month after month weighs heavily on their minds. If this is you, then paying off your mortgage may free you of a mental burden.

What Are the Benefits of Investing Your Money Instead of Paying Off Your Mortgage in Japan?

Despite the benefits of paying off your mortgage early, you may find that the financial math favors investing your money instead. While you can save a bit of money over the long run by paying off your mortgage in Japan first, you’ll likely be reaping less reward than if you invest your money now and keep your long-term mortgage payments. Here are the reasons why:

benefits of investing versus paying off mortgage in Japan

  • -Greater Return on Investment: If you invest your money wisely, the returns on stocks and funds in which you invest are likely to exceed the cost of your mortgage – especially considering Japan’s low mortgage interest rate. And as your investments grow over time, you’ll be compounding these returns for even greater benefits.

  • -Advantageous Tax Breaks: Many investment accounts offer tax advantages, meaning you can invest your money untaxed. Depending on your situation, some mortgage interest may also be tax deductible. If you pay off your mortgage instead of investing, you’ll be missing out on these tax savings.

  • -More Liquid Assets: Property is a nonliquid asset, meaning it takes time and effort to sell a property and turn it into cash. The stocks and bonds that you’ll find in many investment accounts, however, can be traded much more quickly and easily. This means that even after investing, you’ll have more flexibility in getting that money back in case of an emergency or another lucrative investing opportunity.

Final Thoughts On Japanese Mortgage repayment Vs. Investment

There are certainly benefits to paying down your mortgage early. However, people will likely find that investing more money now will reap greater rewards over the long term. And fortunately, even in Japan, language does not have to be a barrier to making smart investments. There are many English services for a variety of investment account options. An experienced financial advisor can help you choose the best investment opportunity for you to build wealth and secure financial freedom.

Sources and Further Reading

- “Crypto asset ownership, financial literacy, and investment experience.” Hiroshi Fujiki. Applied Economics. 2021.

- “Tax incentives in other countries to promote personal saving.” Keith Lawson. Investment Company Institute Global. 2017.

The Japanese Real Estate Investment Market. Nomura. 2016

- "Japan Real Estate Second Quarter". Deutsche Asset & Wealth Management. 2017