Paying off your mortgage faster with Homestar 6
I recently had some push back on a social media post about lower interest rates and how Homestar can help you pay off your mortgage faster. I realize that an Architectural Designer talking about interest rates and mortgages may seem mismatched, so here is the back story.
The post in question was around how Homestar, a voluntary rating system from the New Zealand Green Building Council, can give you better interest rates for your project and therefor help you pay off your mortgage faster.
Currently ANZ is offering 0.7% off a fixed home loan and 1% lower rate on a floating loan for a new home designed and built to a Homestar 6 rating. Homestar 6 is the entry level rung on the ladder, with the rating system going from 6 to 10, 10 being the ultimate.
As a Homestar Designer and Assessor, I am aware that to “justify” building above the minimum especially with building costs being so high, and help my clients make informed choices, I have to inform myself with an awareness of what happens in the big picture of building a new home.
There is much discussion about how much more it costs to build above minimum. As each project is different will also have different eligible Homestar points that they can claim it’s a hard thing to ballpark, but I am going to try.
There are some Homestar points that are naturally claimed by a building’s location. There are points that can be claimed by design features that if considered early on, don’t add to the cost of the project. And then there is additional costs that a minimum code compliant home doesn’t require under current New Zealand Building Law to be legally designed and built.
I settled on an allowance of $40K to cover both the added involvement of NZGBC and the Homestar Professional (Assuming in this case is the same individual or practice as the Architect or Architectural Designer as separate consultants outside an organisation add cost) This also assumes that Homestar was part of the design brief, so no allowance for re-design or adjustments to the design to achieve certification.
The biggest problem I see with comparing costs is that we often don’t ask what those high-level costs include or exclude. Now to be clear, this is the build price I am referring to. This doesn’t allow for landscaping and doesn’t allow for the site. It does include heating, ventilation, and cooling systems. At times these are installed by the clients retrospectively outside the building contract, so that is something to bear in mind. Also some costs are quoted excluding GST, which can lead to misrepresentation.
Assuming a square meter rate of $3,200 (incl. GST) and a home of 200m2 lets for arguments sake settle on a build price of $640,000. And let’s assume that all the heating, cooling and ventilation systems to minimum requirements are included in this. (This is kitchen and bathroom extract systems and one heating source in the Living Area of the home)
I have assumed 20% deposit, assumed the additional Homestar costs become part of the mortgage and also assumed an interest rate of 7% with a mortgage term of 30 years. I am by no means brilliant at economic calculations, so these calculations have been done on the www.sorted.org website which had a mortgage calculation tool.
The calculation below assumes, for both scenarios, the mortgage repayments match other so we can evaluate the time difference in repaying the loan.
Minimum Code Compliance Calculation
Total Build Price $ 640, 000
20% Deposit $ 128,000
Loan Amount is $ 512, 000
Mortgage term 30 years with Interest Rate 7% fixed.
Weekly Repayments $ 786
Homestar 6 Home
Total build Price $ 640,000 + $ 40, 000 = $ 680,000
20% Deposit $ 136,000-128
Loan Amount is $ 544,000
Mortgage term 30 years Interest Rate 7% - 0.7% ANZ home loan special = 6.3%
Weekly Repayments $ 777
Increase weekly repayments to $786
Get mortgage free 12 months sooner.
The lesson for me in all of this. When we ignore the incentives with building better and only focus on the initial cost we miss out on a great opportunity. So often the initial cost of building better is used as an excuse to only do the minimum, which might not always be the case.
*square meter rate obtained from Canstar
https://www.canstar.co.nz/home-loans/how-much-to-build-a-new-house-in-nz/