Table of ContentsEmbarking on the journey of homeownership often involves navigating a sea of mortgage options. Amidst the myriad choices, one loan product stands out for its unwavering stability and peace of mind: Flat 35. If you're considering purchasing a home in Japan, the allure of a fixed interest rate may have already captured your attention. However, like any financial decision, it's essential to weigh both the advantages and disadvantages. In this comprehensive guide, we'll delve into the distinctive features, usage conditions, and pros and cons of Flat 35 loans. Join us as we help you uncover whether this unique mortgage option aligns with your financial goals Call or email us here >>What type of home loan is the Flat 35 loan?First, it is important to understand what kind of mortgage loan a Flat 35 Home Loan is.By knowing what it is, you can compare it with other mortgage loans.What is Flat 35?Flat 35 loans are mortgage loans in Japan that come with a remarkable feature: a long-term fixed interest rate. These loans are managed by the Japan Housing Finance Agency (JHF), an independent administrative agency, in collaboration with private financial institutions across the country. With Flat 35, borrowers can enjoy the stability of the same interest rate for up to 35 years. There are two main types of Flat 35 loans: purchase-type and guarantee-type.Purchase type: Under this arrangement, private financial institutions provide the funds while the JHF purchases the loan receivables.Guarantee type: With this option, private financial institutions provide the funds, and the JHF guarantees the loan claims.While there are over 300 financial institutions offering Flat 35 loans, purchase-type loans are more prevalent, and guarantee-type loans are relatively rare. The beauty of Flat 35 loans lies in the fact that as long as borrowers meet the income and property criteria, they can easily pass the screening process. This makes Flat 35 an attractive choice for individuals who have concerns about loan screening, such as those who have recently changed jobs or are self-employed. Furthermore, those worried about rising interest rates or facing challenges in purchasing group credit life insurance may find Flat 35 loans particularly advantageous.What is Flat 35S?Flat 35S is an innovative system designed to incentivize energy-efficient and earthquake-resistant property purchases by offering reduced interest rates for a specific duration. However, it's important to note that once this period concludes, the interest rate will revert to its original level, leading to an increase in the payment amount. Therefore, when utilizing Flat 35S, it's crucial to formulate a repayment plan that takes into account the eventual rise in interest rates. By proactively anticipating this change, borrowers can better prepare themselves for the financial adjustments and ensure a smooth repayment journey.Eligibility and Criteria to qualify for a Flat 35 home loan・ AGEGenerally, the applicant must be under 70 years old at the time of application and should be below 80 years old by the time of full repayment. However, there is an exception known as parent-child relay repayment. In this scenario, where the child assumes responsibility for repayment, the applicant can still apply for Flat 35 loans even if they are over 70 years old.It's important to note that meeting the age criteria is essential for most applicants, ensuring a reasonable repayment timeframe. However, the parent-child relay repayment option allows for flexibility, enabling older applicants to benefit from Flat 35 loans through the involvement of their children in the repayment process.・ ANNUAL INCOMEAnnual Income Less than 4 Million Yen: If your annual income is less than 4 million yen, the total annual repayment amount for Flat 35 loans, when combined with other loans (such as car loans or education loans), must be kept below 30% of your annual income.Annual Income 4 Million Yen or More: If your annual income is 4 million yen or more, the total annual repayment amount for Flat 35 loans, along with other loans, should not exceed 35% of your annual income.These guidelines aim to ensure that borrowers maintain a manageable debt burden relative to their income level. It's crucial to assess your total repayment obligations and ensure they fall within the specified limits based on your annual income. ・ NATIONALITYJapanese nationals, foreign nationals with permanent residency, and special permanent residents are eligible.・ LOAN AMOUNT & TERMSLoan Amount: The borrowing amount for a purchase-type Flat 35 loan typically falls between 1 million and 80 million yen. However, it's important to note that the specific loan amount offered may vary depending on factors such as the borrower's financial situation, property value, and lending institution's policies.Loan Term: The loan term for a purchase-type Flat 35 loan starts at 15 years and can extend up to a maximum of 35 years. The actual loan term offered to borrowers may depend on various factors, including the borrower's preferences, financial circumstances, and the lending institution's terms and conditions. ・ INTENDED USEFlat 35 must be used to finance the construction or purchase of a property to be lived in by the borrower or his/her relatives.The purchase of property for investment purposes is not allowed.・ PROPERTY REQUIREMENTSSpecific property requirements determined by the technical standards established by the Japan Housing Finance Agency must be met. Here are the property requirements based on the type of property:Detached Houses: To qualify for a Flat 35 loan, the minimum size requirement for a detached house is typically set at 70 square meters or more. This ensures that the property provides adequate living space for the borrower.Condominiums: For condominiums, the minimum size requirement is generally set at 30 square meters or more. This requirement ensures that the condominium unit offers a minimum level of livable space for the borrower.・ GROUP CREDIT LIFE INSURANCEIn relation to Flat 35 loans, it is important to understand the significance of group credit life insurance. While group credit life insurance is optional for Flat 35 loans, it provides valuable coverage and financial protection for borrowers. If the borrower chooses not to enroll in group credit life insurance, it is crucial to note that the mortgage debt will persist even in the unfortunate event of the borrower's death.What are the Merits of Flat 35 LoansThe merits of Flat 35 loans are indeed significant. Here is a discussion of their advantages: Easy Repayment PlanEasy Repayment Plan: Flat 35 loans offer the convenience of a fixed interest rate at the time of borrowing, ensuring that the repayment amount remains consistent throughout the loan term. This stability allows borrowers to easily formulate a repayment plan, as they can rely on a predictable monthly payment. It eliminates the uncertainty associated with fluctuating interest rates and helps borrowers effectively budget their finances.Favorable Interest Rate Reduction with Flat 35S: Flat 35S further enhances the benefits by offering a reduced borrowing interest rate for the initial 5 or 10 years of the loan term. This reduction is applicable if the property being purchased meets the specified criteria for energy efficiency and earthquake resistance. By taking advantage of Flat 35S, borrowers can enjoy lower interest payments during the initial years, which can provide additional financial flexibility and savings. No guarantor or guarantee fees requiredAnother significant advantage of Flat 35 loans is the absence of guarantor requirements and guarantee fees at the time of application. This feature simplifies the loan application process and reduces the financial burden on the borrower. Without the need for a guarantor or guarantee fee, the initial fees associated with the loan application are significantly reduced.Furthermore, Flat 35 loans stand out from other loan products by not imposing fees for early repayment or changes in repayment methods. This flexibility allows borrowers to make adjustments to their repayment plans without incurring additional costs. The absence of these fees provides borrowers with greater financial freedom and the ability to adapt their repayment strategy as needed, ensuring a more favorable borrowing experience.Group credit life insurance is optionalWhile group credit life insurance is typically mandatory for private loans, it is noteworthy that it is optional for Flat 35 loans. This flexibility allows borrowers to make their own decision regarding insurance coverage based on their individual circumstances.In certain situations, borrowers may be unable to obtain group credit life insurance due to health conditions or other reasons. Flat 35 loans can still be utilized without this insurance coverage. It's important to understand that by not purchasing group credit life insurance, borrowers may be eligible for a reduced interest rate, typically by 0.2%.However, it's crucial to acknowledge that in the event of the borrower's death, the mortgage debt remains. This means that the responsibility for the repayment of the loan falls on the borrower's family or beneficiaries. While this increases the risk associated with the loan, it's important to consider the wide range of choices available with Flat 35 loans.Even self employed and small business owners can applyAn additional advantage of Flat 35 loans is their accessibility for individuals who are self-employed or business owners with unstable incomes. Unlike some other loan options, Flat 35 takes into account the previous year's income when reviewing the loan amount, minimizing the emphasis on the current financial situation at the time of application.This feature allows individuals with variable or fluctuating income, such as those who have recently changed jobs, are self-employed, or own businesses, to have a higher likelihood of passing the screening process if their income from the previous year was substantial. This flexibility makes Flat 35 loans an attractive choice for those who may not meet the strict income stability requirements imposed by other loan products.By considering the income from the previous year and placing less emphasis on the current financial situation, Flat 35 accommodates individuals with irregular income streams and provides them with an opportunity to secure a mortgage loan more easily. This advantage enables self-employed individuals and business owners to access homeownership and enjoy the benefits of Flat 35, even with varying income levels.The Demerits of Flat 35 LoansWhile Flat 35 loans offer several advantages, it is important to consider the potential drawbacks as well. Here are the demerits of Flat 35 loans:The Impact and Importance of the Down PaymentAt the time of borrowing, borrowers have the option to choose between a full loan or a partial down payment. However, if the down payment is less than 10% of the construction cost or purchase price of the home, the interest rate will be set higher. This means that opting for a smaller down payment can result in a higher interest rate, which, in turn, leads to higher interest payments and overall repayments over the loan term.With Flat 35 loans, the amount of repayment varies depending on the down payment made. A smaller down payment translates to a higher loan amount and, consequently, higher interest payments and repayments. This can increase the financial burden on borrowers, as they may have to allocate more funds towards their monthly mortgage payments.Even if market interest rates fall, borrowing rates remain the sameOne drawback of long-term fixed interest rates is that, even if market interest rates decrease significantly after the loan is taken out, the interest rate on a Flat 35 loan will not be adjusted during the course of repayment. This means that borrowers may miss out on the opportunity to benefit from lower market interest rates, potentially resulting in higher interest payments compared to borrowers with adjustable or variable interest rate loans.In situations where market interest rates have decreased significantly, borrowers may consider refinancing their Flat 35 loan to take advantage of lower rates. However, it's important to note that refinancing typically involves fees and costs. Additionally, the potential reduction in the total amount of repayment through refinancing is not guaranteed, as it depends on various factors, including the remaining loan balance, new interest rate terms, and associated fees. Therefore, borrowers should carefully evaluate the costs and benefits of refinancing before making a decision.Property Compliance and Inspection ProcessIn order to ensure that the property being purchased meets the technical standards set by Flat 35, a "Certificate of Conformity" must be obtained. This certificate serves as proof that the property complies with the necessary requirements and is eligible for a Flat 35 loan. It helps maintain the quality and integrity of properties financed through the Flat 35 program. The cost of the inspection fee can vary depending on the specific property, typically ranging from approximately 100,000 to 200,000 yen. The exact fee will depend on factors such as the property size, location, and complexity of the inspection process.The examination period for the Certificate of Conformity may sometimes exceed the initially anticipated timeframe so it’s best to be prepared for possible delays. Early Payment and Minimum AmountsFlat 35 loans offer borrowers the opportunity to shorten their repayment period by making early repayments when they have the financial means to do so. Early repayments can help reduce the overall loan balance and potentially save on interest payments over the long term. However, it's important to be aware of the specific terms and conditions related to early repayments for Flat 35 loans.For Flat 35 loans, the minimum amount for early repayment is set at 1 million yen or more, which is typically higher compared to other types of loans. It's crucial to assess your financial situation and evaluate whether you have a substantial amount available for early repayment before considering this option. Keep in mind that early repayment may not be feasible if you can only afford a few hundred thousand yen. Understanding the minimum amount requirement and evaluating your financial capacity will help you make an informed decision regarding early repayment options for your Flat 35 loan.In ConclusionIn conclusion, we have provided an overview of "Flat 35," a mortgage loan option available in Japan. Flat 35 offers the advantage of a long-term fixed interest rate, providing stability and ease in formulating repayment plans. However, it is essential to consider the potential drawbacks, such as the inability to benefit from market interest rate reductions.Choosing the right mortgage loan is a significant decision, and Flat 35 may not be suitable for everyone. It is crucial to thoroughly evaluate your financial circumstances, long-term goals, and risk tolerance before determining whether Flat 35 is the right option for you. Assessing factors like income stability, eligibility criteria, down payment capability, and potential refinancing needs will help you make an informed decision regarding your mortgage financing.