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Mortgage/Housing Loan in Japan

MBA Executive Series April 4, 2013 Norihiko Kato

Housing Loans in Japan

Loan amount: up to 4-8 times of yearly income Relatively low interest rate Long term up to 35 years relatively large amount of mortgage loans available 2 types Mortgage Loans provided by commercial banks, life insurance companies, and non-bank finance companies Government Agency Program: Loans by Government Housing Corporation (1950-2007) Funding /MBS by Japan Housing Finance Agency (2007- )

General Loan Conditions

Borrower must have stable income Credit Guarantee by Guarantee Company Amount, Age, Income, Work duration, Credit history, Down payment, Life Insurance, Property insurance, Property quality Mortgage collateral registration by lender or guarantor

Loan Interest rates

3 types
Variable rate: revised (mostly) semi-annually Fixed rate: 1% or more higher than variable rate Fixed for the first certain term and then borrower chooses fixed or variable for the remaining term

Monthly equal amount repayment (+ bonus repayment)

partial prepayment reduces interest payment burden

Credit Guarantee by a guarantee company designated by lender is generally required In case of default, lender can quickly recover the unpaid balance Borrower pays guarantee fee up-front or together with interest payment Guarantee fee may vary subject to borrowers credibility

Two considerations 1. Multiple of borrowers annual income 2011 averages of FLAT35 program under JFH New apartment: x 5.9 New house: x 6 New house with own design: x 5.2

2. Repayment ratio
annual repayment of Principal & Interest/annual income < 25%35%

In case of Non-performing
Long time past due or personal bankruptcy
Guarantee Company repays to Lender Guarantee Company forecloses the mortgage Life insurance pays insurance for repayment (death or health problem) Voluntary sale of the property Extension of term

Various types of mortgage loans

Refinancing loan
Refinance by new loan with lower interest rate and/or longer term based on updated collateral evaluation

Relocation loan
Financing the difference of loan balance and sales value of old house, plus value of new house

Second house loan Reverse mortgage

Periodical loan disbursement to borrower (pensioners) within the value of mortgage property which will be sold to repay the loan at maturity or borrowers death.

by Government Agency 1950-2007

Commercial banks mortgage loans were underdeveloped and not sufficient Government Housing Corporation (GHC) was established to promote housing in 1950 GHC provided loans at low interest rate with term of 25 years or longer GHC made credit decisions and booking. Loan disbursement and repayment were made through commercial banks GHC captured 40% market share in 2000s GHC got criticized for competing with private banking sector that increased its capability

by Government Agency 2007 Japan Housing Finance Agency (JHF) was established in 2007 to succeeded GHC JHF buys and securitizes banks mortgage loan assets and provides banks with long term funds JHF directly provides handicapped/weak borrowers with mortgage loans that commercial banks cannot provide FLAT 35
Fixed interest rate with term of 35 years No guarantee needed No fee for prepayment Possible to apply for refinancing and purchase of second house Life insurance is not mandatory Applied only for technically qualified houses and apartments Minimum term is 15 years. 10 years for aged 60 and above

Various types of JHF loans

FLAT20: shorter term with lower interest rate FLAT35S: for better qualified houses (energy saving, barrier-free, etc.) with lower interest rate FLAT50: maximum term of 50 years, a child can succeed the loan from the parent
Combination of FLAT and commercial banks mortgage loans are possible

Sample interest rates quotation

As of April 2013

BTMU Variable 0.875% 5 yrs 1.000% 10 yrs 1.350% 15 yrs 2.600% 20 yrs 3.150% 21-25 yrs 2.320% 26-30 yrs 2.400% 31-35 yrs 2.440%

SMBC RESONA Variable 0.875% Variable 0.875% 5 yrs 1.000% 10 yrs 1.350% 5-20 yrs 1.810% 11-15 yrs 2.100% 16-20 yrs 2.290% 21-35 yrs 2.440% 21-35 yrs 2.020%


GHC (1950-2007) & JHF (2007 -) structures

Borrower Bank pass through GHC loans

Government postal deposit & gov. bond


Banks loans

JHF MBS loan asset securitization


proof certificate

loan assets trust

propery qualification cheking institiution


Mongolia/MIK structure?
Borrower Banks loans MIK pass through Government gov. bond


Banks loans

MIK MBS loan asset securitization


proof certificate

loan assets trust

propery qualification cheking institiution



Thank you



This presentation has been prepared solely for informational purposes and its not to be construed as a solicitation or any offer to buy or sell securities, commodities, or related financial instruments. Norihiko Kato has prepared this presentation based on information available to it, including information derived from public sources that have not been independently verified. No investment, divestment or other financial decisions or actions should be based solely on the information in this presentation. Norihiko Kato accepts no responsibility in relation to this presentation, and shall not be liable for any loss or damage whatsoever suffered by any party arising from, relating to, resulting from or based upon the use of this presentation and any errors or omissions there from.