[Don't Miss Out] Don't Choose a Mortgage Based Only on Interest Rates! How a Construction Pro Teaches You to Reduce Total Payments

[A Construction Pro Explains the Truth] Pitfalls of Mortgages and Borrowing Strategies to Reduce Total Payments | Money for Home Building That You Can’t See Just by Comparing Interest Rates

When considering a mortgage, the first thing many people care about is the interest rate.

“Which is better, a variable interest rate or a fixed interest rate?”

“Which bank has a lower interest rate, Bank A or Bank B?”

“I want to lower the interest rate even a little to keep my monthly repayments down.”

Of course, interest rates are important. With a mortgage where the loan amount is large and the repayment period is long, the difference in interest rates can significantly affect the total repayment amount.

However, when I am involved in home building at construction sites, I feel that there are problems that cannot be seen just by comparing interest rates.

That is, thinking about the way you structure your mortgage and the money you spend on the building separately.

As a result of cutting the building budget a little, future utility costs and repair costs increase.

Although it was within budget in the initial estimate, exterior construction, ground improvement costs, and miscellaneous expenses were added, and the loan amount increased more than expected.

While choosing equipment in the showroom, your sense of budget becomes paralyzed, and before you know it, the plan has ballooned by several million yen.

These problems cannot be prevented even if you only compare mortgage interest rates.

What you should really think about is not just the money when building a house.

Including mortgage repayments, daily utility costs, property taxes, and future repair costs, how much will you spend on housing throughout your life?

This time, from the perspective of a construction professional, I will explain the pitfalls that are easy to fall into with mortgages and how to think about suppressing total housing expenditures.

Chapter 1: The first thing you should think about with a mortgage is not “how much can I borrow”

When you consult with a housing company or financial institution, you may be shown an estimate of the loanable amount based on your annual income and years of service.

For example, suppose you find out that you have the potential to borrow up to 45 million yen from a financial institution.

Then, there are people who think, “If I can borrow up to 45 million yen, I will build a house within that range.”

However, there is a first pitfall here.

The amount you can borrow is not the same as the amount you can comfortably repay.

Financial institutions primarily assess the repayment capacity of the borrower. Just because you passed the screening does not guarantee that the loan amount is optimal for your future household finances.

When you purchase a home, various expenses arise in addition to the mortgage.

These include property taxes, fire insurance, earthquake insurance, equipment replacement costs, maintenance costs for exterior walls and roofs, and water heater replacement costs.

Furthermore, there are non-housing expenses such as children’s education costs, car replacements, and retirement funds.

If you only look at the monthly repayment amount when taking out a mortgage, you cannot adequately account for these expenses.

For example, if your mortgage repayment is 120,000 yen per month, your housing costs are not just 120,000 yen.

You need to consider adding property taxes, insurance premiums, and future repair costs to that amount.

Of course, these costs vary depending on the size and specifications of the house, the region, and the family structure.

That is why it is important to think about the amount you can spend on housing from your overall household budget first, rather than deciding your building budget based on the maximum loan amount.

Do not make passing the mortgage screening your goal.

You should be able to go on trips while paying off your mortgage. You should be able to prepare for your children’s education. You should be able to prepare for future repair costs.

A financial plan that allows you to maintain such a lifestyle is what you should think about first.

Chapter 2 Pitfall 1: Deciding the budget based only on the building’s base price

One common mistake in home building is setting a budget by looking only at the building’s base price.

For example, suppose a housing company’s advertisement states, “Building base price: 25 million yen.”

If your budget is 30 million yen, you might feel like you have a 5 million yen buffer.

However, home building incurs costs other than the building itself.

These include exterior construction, water and sewage work, ground improvement work, lighting, curtains, registration fees, mortgage-related costs, and various taxes.

Depending on the land conditions and contract details, additional costs may also arise.

What you need to be careful about here is that not all housing companies include the same items in their base price.

Items included in the standard specifications at one company might be treated as options at another.

Therefore, comparing only the base prices may not tell you the final amount you will need to pay.

For example, let’s consider the following financial plan.

If the building itself is 25 million yen, incidental construction is 3 million yen, exterior construction is 2 million yen, and miscellaneous expenses are 2 million yen, the total is 32 million yen.

These are just hypothetical figures to explain the mechanism, but it exceeds the 30 million yen originally planned by 2 million yen.

If you can cover this difference with your own funds, the problem might be minor.

However, if you don’t have enough personal funds, you will need to increase the loan amount or change the construction details.

Furthermore, you may also need to cover moving expenses and the cost of purchasing furniture and appliances.

Even if the initial estimate looks cheap, the final payment amount is not necessarily low.

What I consider important in home building is to grasp the total amount from the beginning.

Try listing all the necessary items at once, including land costs, the building itself, incidental construction, exterior work, miscellaneous expenses, furniture/appliances, and moving costs.

Then, organize each item into ‘estimated,’ ‘rough estimate,’ and ‘unconfirmed.’

The more unconfirmed items there are, the more likely your budget will swell after the contract is signed.

Before deciding on the mortgage loan amount, first visualize all the money required for the entire home building process.

Even just doing this will significantly change the accuracy of your financial plan.

Chapter 3 Pitfall 2: Future expenses increase as a result of cutting immediate construction costs

This is a part I especially want to convey as a construction professional.

In home building, specifications are sometimes changed to keep the budget down.

Lowering the grade of equipment. Changing exterior wall specifications. Reviewing the number and size of windows. Comparing specifications for insulation and ventilation equipment.

Adjusting your budget itself is not a bad thing.

The problem is deciding on specifications solely because the initial costs will be lower, without considering future expenses as well.

For example, suppose there is an additional cost to improve insulation performance.

If you cut that cost, your construction-time expenses will decrease.

However, depending on conditions such as insulation performance, window performance, solar shading, airtightness, and ventilation/air conditioning plans, the energy required for heating and cooling may increase, potentially leading to higher long-term utility costs.

Also, regarding roofs and exterior walls, if you choose based only on initial costs, maintenance costs may vary depending on the timing of future painting, repairs, and replacements.

However, there is something I don’t want you to misunderstand here.

Choosing high specifications does not necessarily mean you will save money. Even if you adopt expensive equipment or high-performance materials, it does not guarantee that utility or repair costs will decrease enough to recover the additional expenses.

What is important is to specifically compare what kind of future benefits can be expected in exchange for the additional costs.

For example, suppose you add 1 million yen to a certain specification.

As a result, how much are utility and maintenance costs expected to change? How many years will it take for the savings to justify the additional cost? Will equipment replacement be necessary along the way?

Only after confirming these points can you judge whether that investment is reasonable for your home.

Housing performance is not just about increasing numerical values.

You need to consider everything, including the local climate, building shape, window placement, sunlight, lifestyle, and construction quality.

For example, if you only increase insulation performance for windows that receive strong summer sunlight, the room may still become hot if solar shading is insufficient.

To improve winter comfort, it is not just about insulation performance; window surface temperature, drafts, and heating plans are also involved.

When considering building specifications, please have the perspective of not just “how much cheaper is it now,” but “what kind of expenses will occur after I start living there.”

A house is not a product that is completed the moment it is built.

It is a place where you will live for decades to come.

Keeping initial costs down and keeping lifetime expenses down are not necessarily the same thing.

Chapter 4 Pitfall 3: Becoming Numb to Costs of a Few Hundred Yen at the Showroom

During meetings for a custom-built home, you will decide on the specifications for equipment and interior finishes.

Kitchen, bathroom, vanity, toilet, flooring, fixtures, lighting, and storage.

It is precisely because there are so many things to choose from that building a home is fun.

However, there is a mechanism here as well that makes it easy for the budget to swell.

“With this kitchen, your monthly repayments will only increase by a little.”

“Even if you upgrade the dishwasher to a higher grade, the monthly difference is minimal.”

“Since it’s a custom-built home, why not be particular about this part?”

Each individual additional cost looks small.

However, when dozens of such additions pile up, it eventually becomes a large sum of money.

Let’s assume that your loan amount increases by 2 million yen due to the addition of various options.

Assuming a 35-year mortgage repayment period, an annual interest rate of 1.5%, equal principal and interest repayment, and that the interest rate remains unchanged until the loan is paid off, the increase in monthly repayments due to the additional 2 million yen loan is approximately 6,100 yen.

The total repayment amount over 35 years would be approximately 2.56 million yen, which means you would pay about 560,000 yen more than the initial 2 million yen, including interest.

The actual amount will vary depending on interest rates, repayment methods, loan fees, etc., but it is a difference that is easy to overlook if you only look at the monthly amount.

Of course, I am not saying that the added options have no value.

You want to make the kitchen you use every day easier to use. You want to reduce the burden of housework. You want to use your favorite flooring material.

Such wishes are related to your satisfaction with life.

The important thing is not to endure everything, but to consciously decide what to spend money on.

When choosing specifications, I recommend thinking about them by dividing them into the following three categories.

The first is things that are worth spending money on during construction.

These are parts that are difficult to change after completion, such as the building’s structure, safety, insulation/airtightness, and areas that prevent rainwater intrusion. Of course, the necessary specifications vary depending on the building’s conditions and design.

The second is to compare costs and benefits based on the premise of long-term use.

This applies to water heaters, air conditioning equipment, windows, exterior walls, etc. Make decisions by checking performance, durability, replacement costs, and maintainability.

The third is things that are easy to change even in the future.

Furniture, decorations, some lighting, and storage that can be added later can be considered after moving in if there is no room in the budget.

However, for parts where changing them later would involve major construction, such as wiring or backing, it may be better to prepare them during construction.

“Is this construction that can only be done now?” or “Can it be handled later?”

Just having this perspective will change how you use your budget.

Chapter 5: How to Structure a Mortgage to Reduce Total Payments

So far, I have explained building budgets and future maintenance costs.

Now, what points should you check regarding the mortgage itself?

The important thing is not just to look for the lowest interest rate.

It is to compare interest rates, handling fees, guarantee fees, the coverage content of group credit life insurance, repayment periods, and the timing of loan execution.

1. Compare conditions including not just interest rates but also various fees

Mortgages have differences in administrative fees, guarantee fees, and additional interest rates for group credit life insurance depending on the financial institution and product.

For example, even with a mortgage with a low interest rate, if the fees are high, the difference in total cost compared to another product may be small.

Conversely, even if the interest rate is slightly higher, it may meet your needs when considering fees and coverage content.

When comparing, please list the following items.

・Applicable interest rate and interest rate type
・Administrative fees and guarantee fees
・Coverage content and additional costs of group credit life insurance
・Fees and conditions for early repayment
・Procedures required before loan execution
・Repayment period and age at full repayment
・Impact on household finances if interest rates rise

Especially when choosing a variable interest rate, it is important to check not only the current interest rate but also whether you can continue repayments if interest rates rise in the future.

When comparing mortgages, make sure to align the conditions, such as the loan amount, repayment period, and repayment method.

2. Calculate backward from housing costs, including maintenance expenses, rather than the borrowing limit

When deciding on your mortgage repayment amount, first consider the amount that can be allocated to housing costs from your overall household budget.

For example, if you assume a monthly housing cost of 150,000 yen, do not allocate all of that 150,000 yen to mortgage repayments; also consider property taxes, insurance premiums, and repair costs.

Furthermore, check if your household budget can handle it by including utility costs, car maintenance expenses, education costs, and retirement funds.

Even when setting aside monthly repair costs, it is important to plan while considering when they will actually be needed and how much they will cost.

The way you think about housing costs varies depending on your family structure and lifestyle.

That is why you need to decide on a repayment amount that suits your own life, rather than just the maximum borrowing amount presented by financial institutions.

3. For custom-built homes, also check the costs for bridge loans and split disbursements

Unlike purchasing a completed building, custom-built homes may require payments at multiple stages, such as land costs, construction start payments, interim payments, and the final balance upon completion.

If the mortgage disbursement occurs at the time of building completion, you may use bridge loans or similar options to pay for land costs and construction fees in advance.

These loans incur interest and fees depending on the product.

Also, depending on the financial institution, there are products that allow for split mortgage disbursements, but the usage conditions and costs vary for each.

What you want to check here is not just the mortgage interest rate.

It is to compare the payment dates for the land, construction start, interim, and completion with the dates when the loans will be disbursed.

Confirm the housing company’s financial plan and the financial institution’s loan conditions in advance, and organize when and how the necessary funds can be prepared.

4. Consider early repayment in balance with your available cash on hand

After taking out a mortgage, some people may consider early repayment when they have a lump sum of money on hand.

Early repayment has the potential to reduce your interest burden.

However, it does not mean that you should simply put all your available cash toward repayment.

When you own a home, you may find yourself in need of sudden repairs or equipment replacements.

There is also the possibility that your income may change due to illness or changing jobs.

You must also consider money that will be needed in the future, such as for education or retirement.

If you run short on cash and need to borrow from another source to cover sudden expenses, it may end up increasing the burden on your household budget.

Before making early repayments, check whether you have secured funds for living expenses, major upcoming expenditures, and home repair costs.

Also, if you are using the mortgage tax deduction, you need to consider it in light of the application conditions and the remaining period.

It is important to make a decision that includes not only the interest savings from early repayment but also the benefits of keeping cash on hand.

Chapter 6: “Building a Home Without Losing Money Over a Lifetime” from a Construction Pro’s Perspective

Here, I would like to share one more important way of thinking about money for home building.

It is that looking only at the total repayment amount of a mortgage does not give you the full picture of the money involved in housing.

For example, House A may have lower construction costs, but utility and maintenance costs could end up being higher.

On the other hand, House B may have higher initial costs, but depending on the specifications and construction conditions, it may be possible to keep future utility and repair costs down.

When comparing these two, House A might look cheaper if you only look at construction costs.

However, in actual daily life, in addition to mortgage repayments, you will incur utility costs, repair costs, equipment replacement costs, and so on.

Therefore, I recommend organizing and comparing the following items.

Items for considering the lifetime cost of a home

・Land and building purchase costs
・Incidental construction costs and miscellaneous expenses
・Mortgage interest and related fees
・Monthly utility costs
・Fixed asset taxes and insurance premiums
・Repair and replacement costs for exterior walls, roofs, equipment, etc.
・Future renovation costs
・Costs assuming sale or relocation

However, it is not possible to predict all costs accurately.

Future utility costs will change depending on energy prices and your lifestyle. Repair costs will also change depending on construction quality, materials used, climate, and maintenance conditions.

Therefore, rather than concluding with a single number that “this house is definitely a better deal,” it is important to compare multiple scenarios under consistent conditions.

For example, by anticipating not only standard cases but also scenarios such as rising utility costs, earlier-than-expected equipment replacement, or interest rate hikes, it becomes easier to see the weaknesses in your financial plan.

And there is one more thing you must not forget.

That is, the value of a home is not just about money.

Not having to suffer from the cold on winter mornings. Not having the interior become too hot in the summer. Being able to do housework easily. Being able to live with peace of mind with your family.

Such comfort is also an important element in home building.

However, you do not necessarily need to choose the most expensive equipment to increase comfort.

By comprehensively considering building shape, window placement, solar shading, insulation and airtightness, and ventilation and air conditioning plans, you may be able to strike a balance between cost and livability.

Instead of focusing only on cutting construction costs, invest appropriately where necessary and adjust parts that are easier to change later according to your budget.

It is important to consider that judgment together with your mortgage repayment plan.

Chapter 7: Checklist to Avoid Regrets with Your Mortgage

Finally, here is a summary of items to check before proceeding with your home building plan.

Regarding Financial Planning

□ Have you confirmed not only the land cost and building base price, but also incidental construction costs and miscellaneous expenses?

□ Have you checked for the possibility of additional costs such as exterior work, ground improvement, and water supply and drainage work?

□ Have you included furniture, home appliances, and moving expenses in your budget?

□ Have you decided on an amount that you can comfortably repay from your household budget, rather than the maximum amount you can borrow?

Regarding Building Specifications

□ Are you considering not only initial costs but also utility costs and future repair costs?

□ Have you considered parts that are difficult to change later, such as insulation performance and durability?

□ Can you explain the reason for adding expensive options and the expected effects?

□ Have you considered the option of deferring equipment and interior finishes that are easy to change in the future until after you move in?

About Mortgages

□ Have you compared not only interest rates but also administrative fees and guarantee charges?

□ In the case of a variable interest rate, have you checked the repayment amount and the impact on your household budget if interest rates rise?

□ Have you confirmed the costs and payment timing for bridge loans or split disbursements?

□ Have you checked the application conditions for systems such as the mortgage tax deduction?

□ Can you ensure you have enough cash on hand even if you make early repayments?

Checking these one by one before signing a contract does not guarantee that you will completely avoid budget overruns or future burdens, but it will reduce oversights and lead to more informed decisions.

Summary: Mortgages change not only based on ‘how you borrow’ but also ‘how you build your home’

When thinking about a mortgage, comparing interest rates is essential.

However, looking only at interest rates will not give you the full picture of the costs involved in building a home.

How much should you spend on initial building costs?

How should you think about future utility and maintenance costs?

What should you spend money on in the showroom, and what should you put off until later?

What kind of mortgage should you choose, and how much cash should you keep on hand?

These are all connected.

Cutting construction costs by 1 million yen does not necessarily mean reducing your total life expenses by 1 million yen.

Conversely, investing 1 million yen more does not necessarily mean you will definitely profit.

What is important is to think about what will change by spending that money, how many years you will use it, and what kind of expenses might be reduced.

I believe that when thinking about money for home building, it is important to make decisions that include not only the mortgage repayment amount but also your life after you move in.

A house is not finished once it is built.

Life continues there for decades to come.

That is precisely why I want you to think about building performance, future maintenance costs, and mortgage terms as a whole, rather than just focusing on immediate affordability.

What is truly important in home building is not borrowing as much as you can, nor is it getting everything done as cheaply as possible.

It is about keeping total housing expenditures reasonably low while protecting your lifestyle.

I believe that leads to a mortgage and home building experience you won’t regret.

When comparing quotes from housing companies or mortgages from financial institutions, please try to have a perspective that looks not just at ‘how much you pay now,’ but ‘what you will pay for and how much it will cost in the future.’

That first step leads to home building that considers your finances over your entire life.