As Japan mortgages get longer negative equity risk moves into focus

The Nikkei Shimbun reported on June 4th that mortgage repayment periods in Japan, long commonly treated as having a standard maximum of 35 years, are rapidly stretching longer.

The shift is no longer limited to a small group of borrowers. In the Greater Tokyo Area, 32.6 percent of new condominium buyers in 2025 chose repayment periods of 36 years or more, according to Recruit data cited by the Nikkei.

Photo by Sumudu Mohottige on Unsplash

The trend reflects soaring housing prices and rising interest rates. Some buyers now say they can no longer purchase a home unless they choose an ultra-long mortgage term.

But even if a longer loan brings the desired property within reach, the risks to household finances can be significant. One of the most important is negative equity, where the outstanding mortgage balance exceeds the home’s resale value.

This risk is especially important with ultra-long mortgages because the principal declines slowly in the early years.

If borrowers later need to sell because of illness, unemployment or another unexpected event, they may find that selling the property does not fully repay the loan.

“Anything under 35 years would make the monthly burden too heavy,” a married couple in their 20s told the Nikkei.

The couple, who both work as full-time company employees, are considering buying a large existing condominium in Tokyo that is about 10 years old. Their household income exceeds JPY 10 million, but the amount they expect to borrow would be more than JPY 100 million.

Unless they stretch repayment over a longer period, such as 40 years, they said they would have “no room at all” to cover other expenses.

For years, many home loans in Japan were structured around repayment periods of up to 35 years. That picture is now changing quickly.

According to the Recruit survey, the share of new condominium buyers in the Greater Tokyo Area with repayment periods of 36 years or more jumped to 32.6 percent in 2025.

That was about 2.8 times the 11.6 percent recorded in 2024.

Rising Condominium Prices and Higher Interest Rates Drive Longer Loan Terms

The average repayment period also lengthened, rising to 36.4 years in 2025 from 34.5 years in 2024. Within the group choosing repayment periods of 36 years or more, an increase in especially long borrowings, including 50-year loans, pushed up the overall average.

“In the Greater Tokyo Area, new condominium prices are soaring, and interest rates are also beginning to rise,” the Nikkei quoted Yoichi Ikemoto, editor-in-chief of SUUMO at Recruit, as saying. “The trend symbolizes a situation in which people cannot buy unless they extend the repayment period.”

According to MFS Inc, which operates the mortgage comparison and diagnostic service Mogecheck, variable mortgage rates at major banks had risen above 1 percent as of June, up by about 0.3 to 0.4 percentage points over the past year.

For example, if a borrower takes out a JPY 100 million loan at an interest rate of 1 percent, the monthly payment on a level-payment mortgage would exceed JPY 280,000 with a 35-year term.

Extending the term to 50 years would reduce the monthly payment to about JPY 210,000.

The lower monthly payment can make a purchase appear more affordable, but the borrower remains exposed to a longer debt period and higher total interest costs. Ikemoto said that, given inflation, some people likely want to buy a home sooner rather than later.

Data from Sumitomo Mitsui Trust’s Asset Formation Mirai Research Institute, which divided the past 20 years into five-year periods, also shows the share of borrowers choosing terms of 36 years or more rising to 9.1 percent in the 2021 to 2025 period.

In earlier periods, the figure had been only around 1 to 2 percent, highlighting the sharp increase.

The share choosing repayment periods of 36 years or more is especially high in regions outside Japan’s three major metropolitan areas of Tokyo, Osaka and Nagoya.

“In some cases, income levels are relatively lower than in major urban areas, while the upward trend in housing prices has strengthened due to rising material costs and labor shortages,” Reina Yano, a researcher at the institute, told the Nikkei. “This may be making people relatively more conscious of using ultra-long repayment terms to keep the burden down.”

Some Surveys Show More Than 30 Percent Choosing Terms of 36 Years or More Nationwide

The trend has continued in 2026. According to an MFS survey cited by the Nikkei, borrowers choosing repayment periods of 36 years or more accounted for about 31 percent nationwide in April 2026 according to their data.

“The landscape has changed completely over the past year,” Takashi Shiozawa, a director at MFS, said. “For many households, ultra-long repayment may now be the only way to purchase a home.”

Changes in the stance of financial institutions may also be playing a role.

According to a Japan Housing Finance Agency survey conducted as of June 2025, 57.5 percent of responding financial institutions offered variable-rate mortgage products with terms of up to 50 years. The share of lenders offering 50-year products rose by about 24 percentage points in one year.

“I want to take out a mortgage of just under 40 years if I can,” a company executive in his 40s who is considering buying a condominium in central Tokyo told the Nikkei.

His desired property costs about JPY 200 million. He believes a longer repayment term “increases the possibility of being able to borrow the amount I want.”

“Screening methods differ by financial institution, so there are exceptions, but in some cases choosing an ultra-long repayment term could affect the loan screening process,” Shiozawa said.

In general, financial institutions assess whether the borrower’s repayment burden as a share of income falls within a certain range.

If lowering monthly payments through an ultra-long term is judged to reduce that ratio, it could become one incentive for borrowers to choose a longer repayment period.

Why Ultra-Long Mortgages Can Increase Negative Equity Risk

Experts warn that the risks should not be underestimated.

“People should recognize that borrowing in a way that only stabilizes household finances through an ultra-long repayment period carries high risk in itself,” Yano said.

With ultra-long repayment terms, the principal declines slowly in the early years. If the borrower becomes unable to repay because of sudden illness, unemployment or another unexpected event, selling the home may not be enough to clear the debt if the property’s value has fallen.

In that situation, the borrower may fall into negative equity, with the outstanding loan balance exceeding the home’s sale price.

This means to cover the shortfall and conclude a sale, negative equity owners would need to pay the difference in a lump sum prior to settlement.

Borrowers should also keep in mind that a longer repayment period means a longer period of exposure to risks such as interest rate fluctuations.

If debt tied to ultra-long repayment terms grows excessively, heavy mortgage burdens could weigh on consumption by younger households and others.

During an economic downturn, it could also increase financial distress, including personal bankruptcy cases, potentially becoming a long-term social issue.

“People should first take a step back calmly and consider whether there really are no properties they can afford with repayment within 35 years by compromising on location, building age or size,” he said. “They should also carefully consider whether they have the option of making a down payment to reduce the amount borrowed.”

Households that have already signed ultra-long repayment contracts need to consider planned early repayments.

Even younger borrowers in their 20s who choose 50-year repayment terms will enter retirement age near the end of the loan period, creating a risk that household finances could become strained.

“While also preparing for education costs and retirement funds, borrowers should develop a plan that allows them to pay off the loan while they still have sufficient employment income,” Yano said.

Source:

Nikkei Shimbun (Japanese only; paywalled)