Hi all,
Am now considering getting a pair loan with my spouse (JPY 120 million loan split 50/50).
One of the banks we will be screening with will be SMBC and I understand they have a group credit life insurance scheme called cross-support (I understand for Flat35 it's called Duet or something), where if one spouse passes away their remaining mortgage balance + their spouse's mortgage balance gets wiped away by the bank. The cost of this is an additional 0.18% to the interest rate.
However, and upon reading other Japanese sources, it seems like the spouse would have to pay income taxes on the remaining balance of the mortgage that gets wiped.
Example: If one spouse passes away, the surviving spouse would have to suddenly deal with a potentially large income tax bill if their remaining mortgage balance was JPY 50 million. The debt going from JPY50 million to zero would be treated as "temporary income" by the NTA (progressive type of taxation which also includes your salary income I believe) (link1 link2).
I was quite concerned as I wouldn't want my loved one to face a sudden and large tax bill if ever something unfortunate happened to me. One recommendation we found online was to get private life insurance as the tax treatment for the insurance payout upon a spouse passing away would be more favorable (as its treated as inheritance rather than temporary income and the threshold for that is JPY 160 million) and using that to pay off remainder of the loan.
Appreciate if anyone can share your thoughts if you've gone through this consideration before?
by hamsterzoom