Early mortgage repayment in Japan

Term reduction vs payment reduction

Early repayment (繰上返済) means paying extra principal ahead of schedule. You can apply it two ways: term reduction keeps the monthly payment the same but shortens the loan, while payment reduction keeps the term the same but lowers the monthly payment. All else equal, term reduction normally saves more interest because it removes the most heavily-interest-bearing later years. Many lenders let you make partial prepayments online for free, but the method, minimum amount, and any fee differ, so check your loan’s terms.

The liquidity and tax trade-off

Prepayment is close to irreversible: once the cash is in the loan, you cannot easily get it back. Preserve an emergency fund — commonly several months of living costs plus property-specific repair reserves — before making large prepayments. Also weigh the mortgage-tax deduction, which is based on the year-end mortgage balance: prepaying reduces that balance and can reduce the deduction during the eligible years. The decision compares the interest saved against the value of liquidity and any deduction forgone.

Key points to carry away: Term reduction (期間短縮) usually saves more interest than payment reduction (返済額軽減), all else equal; Many online prepayments are free, but the method and any fee differ by lender; Preserve an emergency fund before prepaying — prepayment is hard to reverse; A large prepayment can reduce a mortgage-tax deduction based on the year-end balance. Use the linked guides and calculators for the full decision, and confirm anything material with the lender, a licensed broker, a judicial scrivener, or a tax accountant before you act.