What are Flat 35 Home loans?

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?

It is handled by the Japan Housing Finance Agency (JHF), an independent administrative agency, in cooperation with private financial institutions nationwide, and allows borrowers to continue borrowing at the same interest rate for up to 35 years.
Flat 35 can be roughly divided into two types: purchase-type and guaranteed-type.

●Purchase type: Private financial institutions lend funds and JHF purchases the loan receivables.
●Guarantee type: Private financial institutions lend funds and JHF guarantees the loan claims.

More than 300 financial institutions offer Flat 35, but purchase-type loans are the most common, and only a few offer guarantee-type loans.
In addition, as long as income and property criteria are met, it is possible to pass the screening process for Flat 35.
Therefore, those who have concerns about loan screening, such as those who have just changed jobs or are self-employed, can easily apply for a Flat 35 loan.
Others who are concerned about rising interest rates or who have difficulty purchasing group credit life insurance may also consider using it.

What is Flat 35S?

Flat 35S is a system under which interest rates are reduced for a certain period of time for Flat 35 applicants who purchase a property with high energy efficiency and earthquake resistance.
At the end of that period, the interest rate will return to the original rate and the payment amount will increase.
If you are using Flat 35S, make a repayment plan with the expectation that the interest rate will eventually rise.

Criteria for Flat 35

●Age
The applicant must be under 70 years old at the time of application and under 80 years old at the time of full repayment.
However, in the case of parent-child relay repayment, in which the child becomes the successor, the applicant can apply even if he/she is over 70 years old.

●Annual Income
The ratio of the total annual repayment amount between Flat 35 and other loans (car loan, education loan, etc.) must be less than 30% if the annual income is less than 4 million yen, and 35% if the annual income is 4 million yen or more.

●Nationality
Japanese nationals, or foreign nationals with permanent residency, and special permanent residents are eligible.

●Loan amount and term
The borrowing amount for a typical purchase-type Flat 35 is between 1 million and 80 million yen or less.
The loan term is 15 years or longer, with a maximum term of 35 years.

●Intended Use
Flat 35 is used to finance the construction or purchase of a property to be lived in by the borrower or his/her relatives.
However, the purchase of property for investment purposes is not allowed.

●Property Requirements
Flat 35 is available only for properties that meet the technical standards set by the Japan Housing Finance Agency.
Detached houses: 70 square meters or more, condominiums: 30 square meters or more.

●Group credit life insurance
For Flat 35, group credit life insurance is optional and can be applied for without it.
However, it should be noted that if the borrower does not enroll in group credit life insurance, the mortgage debt remains even in the event of the borrower's death.

What are the merits of Flat 35 Home loans

Let’s talk about the merits of Flat 35 loans.

Easy repayment plan

With Flat 35, the interest rate at the time of borrowing is fixed and the repayment amount is fixed.
The advantage is that you can repay the loan at the interest rate at the time of contract, no matter how many years you borrow, making it easy to formulate a repayment plan.
In addition, if you purchase a property that meets the criteria for Flat 35S, the borrowing interest rate will be reduced for the first 5 or 10 years of borrowing.

No guarantor or guarantee fees required

Another advantage of Flat 35 is that no guarantor or guarantee fee is required at the time of application.
Since no guarantee fee is required, the initial fees of the loan application can be reduced, thereby lessening the burden on the borrower.
Other loan products often charge fees for early repayment or changes in repayment methods, but Flat 35 does not.

Group credit life insurance is optional

While group credit life insurance is usually mandatory for private loans, it is optional for Flat 35.
Flat 35 can be used even if you are unable to obtain group credit life insurance due to health conditions or other reasons.
By not purchasing group credit life insurance, the applicable interest rate can be reduced by 0.2%.
Please note that the mortgage debt remains even in the event of the death of the mortgagee.
Although the risk is increased, the wide range of choices is an advantage.

Even self employed and small business owners can apply

One of the advantages of Flat 35 is that it is easy to use, even for self-employed or business owners with unstable incomes.
Since the loan amount is reviewed based on the previous year's income, the financial situation at the time of application is not taken into consideration as much.
If your income from the previous year is high, even those who have just changed jobs, are self-employed, or are business owners can easily pass the screening process.

The demerits of Flat 35 loans

Now let’s take a look at the demerits.

If your down payment is low, the interest rate is higher

At the time of borrowing, you can choose between a full loan and a partial down payment, and the down payment can be set freely.
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.
Since the amount of repayment varies depending on how much you put down, a smaller down payment will result in higher interest payments and higher repayments.

Even if market interest rates fall, borrowing rates remain the same

While long-term fixed interest rates are an advantage, they can also be a disadvantage.
Even if market interest rates drop significantly after the loan is taken out, the interest rate will not drop during the course of repayment.
In this case, you may consider refinancing, but be aware that refinancing involves a fee and may not necessarily result in a reduction in the total amount of repayment.

There are different criteria regarding the properties under consideration

Flat 35 has its own technical standards for the property to be purchased.
In order to prove that the property meets these technical standards, a "Certificate of Conformity" must be submitted, which requires an inspection fee.
The inspection fee is approximately 100,000-200,000 yen depending on the property, and in some cases, the examination period may take longer than expected.

Loan pre-payment minimums are set higher

It is possible to shorten the repayment period of a mortgage loan by making early repayments when you can afford to do so
The minimum amount varies from loan to loan, but the minimum amount for Flat 35 is set at 1 million yen or more, which is higher than other types of loans.
If you have a large amount of money, you can use prepayment, but you cannot use it if you can only afford a few hundred thousand yen.

In Conclusion

In this article, we introduced "Flat 35," a type of mortgage loan.
It has the advantage of a long-term fixed interest rate, which means that interest rates do not fluctuate and repayment plans are easy to make, but it also has disadvantages, such as the fact that the borrowing rate remains the same even if market interest rates fall.
Since this is not a mortgage suitable for everyone, it is important to first determine whether it is right for you.