What an early repayment reduces is future interest. Repaying the same ¥1 million can save quite different amounts depending on when you do it, what the interest rate is, and which method you use. This guide compares, with this site's calculation engine, how much interest an early repayment of ¥1 million saves on a ¥30 million loan at 1.5% over 35 years with equal payments (the total payment is the same every month).
The two kinds of early repayment
The Japan Housing Finance Agency (Flat 35) describes two ways to make a partial early repayment:
- Shorten the term (期間短縮型): the monthly payment stays the same, and the term of the loan is shortened according to the amount repaid.
- Reduce the payment (返済額軽減型): the term stays the same, and the monthly payment is lowered.
When you repay early changes the effect about 9 times over
These are the results of repaying ¥1 million once, after 1, 5, 10, 20 and 30 years of payments.
| When repaid early | Shorten the term: interest saved | Shorten the term: time cut | Reduce the payment: interest saved | Reduce the payment: monthly payment |
|---|---|---|---|---|
| After 1 year | ¥647,209 | 1 yr 5 mo | ¥277,193 | ¥91,855 → ¥88,725 |
| After 5 years | ¥552,344 | 1 yr 4 mo | ¥242,433 | ¥91,855 → ¥88,404 |
| After 10 years | ¥441,328 | 1 yr 3 mo | ¥199,809 | ¥91,855 → ¥87,856 |
| After 20 years | ¥242,360 | 1 yr 1 mo | ¥117,337 | ¥91,855 → ¥85,648 |
| After 30 years | ¥70,661 | 11 mo | ¥38,593 | ¥91,855 → ¥74,545 |
Repaying early after 1 year cuts interest by about ¥650,000 with the shorten-the-term method, but repaying after 30 years cuts only about ¥70,000. Interest is charged on the principal that is still outstanding, so the earlier you repay, while the principal is largest, the more of the interest that would otherwise have built up afterwards you avoid. For the same ¥1 million, shortening the term saves more interest than reducing the payment in every row.
The higher the interest rate, the bigger the effect
The same ¥1 million repaid early after 5 years, at different interest rates:
| Interest rate (annual) | Shorten the term: interest saved | Shorten the term: time cut | Reduce the payment: interest saved |
|---|---|---|---|
| 0.5% | ¥158,441 | 1 yr 2 mo | ¥77,082 |
| 1.5% | ¥552,344 | 1 yr 4 mo | ¥242,433 |
| 2.5% | ¥1,075,176 | 1 yr 7 mo | ¥422,435 |
Which method to choose
If you look only at how much interest is saved, shortening the term is better for the same amount. Reducing the payment, on the other hand, keeps the term the same and lowers the monthly payment (repaying ¥1 million after 5 years turns ¥91,855 a month into ¥88,404). So the choice depends on the goal: a lighter monthly burden, or a lower total. Which suits you depends on your income outlook and how much cash you have on hand, so this guide does not recommend either method.
What to check before you repay early
The conditions for early repayment differ by lender. As one reference, for Flat 35 the minimum for a partial early repayment is ¥1,000,000 when handled through a lender's branch and ¥100,000 when handled through the internet service, and there is no fee for the procedure. You may have to pay accrued interest, meaning the interest that has built up between the day after the previous payment date and the date of the early repayment, and the request has to be made at least one month before (Japan Housing Finance Agency). Check the terms of your own loan with your lender.
To try your own numbers, use the mortgage payment and early repayment calculator. It can also work out a fixed amount repaid every year, and it shows the full repayment schedule.