Japan’s five-year and 125% mortgage rules

What the rules do and don’t do

On some variable loans, the payment amount is recalculated only every five years even if the rate is reviewed twice a year (the "five-year rule"), and when it is recalculated any increase is limited to 125% of the previous payment (the "125% rule"). These conventions limit the timing and size of payment changes — they smooth the shock. They do not cap the interest rate, do not stop interest accruing, and do not reduce the total you owe. Some lenders do not use these conventions at all, so read the actual agreement rather than assuming they apply.

The unpaid-interest risk

The danger is subtle: if the rate rises far enough that the interest due exceeds the capped payment, the shortfall becomes unpaid interest (未払利息) that can accumulate on top of the principal. The payment feels stable, but the debt is quietly growing, and at the end of the smoothing period a large recalculated payment or a residual balance can appear. This is why a variable borrower must stress-test at higher rates and keep reserves, rather than treating the five-year/125% rules as protection against rising rates.

Key points to carry away: The five-year rule keeps the payment unchanged for a period even if the rate rises; The 125% rule limits a payment increase to 125% of the prior payment at review; Neither rule caps the interest rate or prevents interest from accruing; When interest exceeds the scheduled payment, unpaid interest can build up. 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.