Mortgages!

I realize plenty of people understand how mortgages and mortgage amortization works.  If you are one of those, then this probably won't be that helpful. If you are new to this, I hope my explanation and tips help.  I am also going to keep this in the context of an Earthship. For credibility sake, I'm almost done with my BBA degree in accounting, and I enjoy managing my finances so....here we go:

I posted a blog article on how much an Earthship can cost to build.  I said that a lot of it depends on how much you are willing to do yourself.  If you can take time off work and find lots of recycled materials, good for you! You will save yourself thousands of dollars and this is of great benefit, as you will see.

I also realize that some people can't just quit their jobs, but they still want the freedom an Earthship has to offer.  This is me included.  We may have to get higher mortgages than the above folks.  Therefore, in the interest of trying to help people get to freedom and realize their dreams, I hope the following will motivate you to take extra time to save up and then pay off your mortgage as quickly as possible.

Tip #1 If you have to mortgage your Earthship then then you should avoid paying more than 35% of your net (after taxes) household income for said mortgage.  This is not to say that the bank will not loan you more than 35%.  Oh you bet your sweet *** they will give you more than 35%.  In fact, they are totally cool with giving you 35% of gross (pretax) income! That is NOT to your benefit.

I hate to have to explain why this is important, since it seems obvious, but if you borrow more than 35%, you are taking a risk.  The world economy is not stable.  Your job is not necessarily secure.  You are likely to have other debts. At least at 35%, the risk of you not being able to pay your mortgage should something nasty occur, is much lower. Especially on dual incomes.  I'm taking this advice from Gail. Love her or hate her (she is pretty blunt), her advice is still reasonable.  If you want to risk it however, that is your business. I just don't recommend it.

Tip#2 If you are concerned that the Earthship + land will cost more mortgage than you can afford (35%), then save up a large (20% or more) downpayment.  If you don't know how much mortgage you can afford, go here. A large downpayment may help your mortgage to be more affordable.  Yes it will take longer. And you can't buy a house in Canada anymore without a small (5%) downpayment. But it will reduce your mortgage size and thus reduce your monthly payments.  In the bank's eyes, it also makes you "less risky", therefore they will reduce your interest rate and save you thousands on interest.

Tip#3 Even if you CAN afford your mortgage, you are still better off for saving a 20% downpayment.  (See mortgage amortization below!) Part of the reason is less interest paid. The other reason is that this will also save you on your mortgage insurance premiums.  (In Canada).  Anyone who puts less than 20% down MUST pay mortgage insurance.  While it is optional for those who pay the 20%, you will typically get a worse interest rate and other fees if you don't have it, so it's unlikely you will not have insurance.  Obviously, the more you put down, the lower your premium will be.  On $500,000 and a 20% down payment, your mortgage insurance will be $4000.  Total. Put down only 10% and your mortgage insurance will be $9000.  You get the idea.

Tip#4 Pay an extra $100 on your mortgage each month.  As long as the terms of your mortgage don't punish you for early repayment (Make sure when you negotiate a mortgage that they won't punish you for making extra payments), paying a bit extra each month will save you thousands on interest and you will pay off your mortgage a few years earlier.  See below for how this works!

Tip#5 Do semi monthly payments if you can.  This means instead of paying 12 times per year, you will pay 24 times per year.  This will also save you money on interest.  Why? Mortgage interest will either accrue daily or monthly.  Interest charged is based on what you still owe.  The faster/more you make payments to pay down the principle (what is remaining on what you borrowed), the less interest they charge you.  See below for how this works!

Amortization Calculations (not including downpayment, property taxes or mortgage insurance).  
Note: I did these in excel.  If you notice any errors let me know.  It was acting funny.

On a $400,000 house at 3% interest rate for 30 years, you will have paid $207,110 worth of interest.

• You will have actually paid $607,110 back to the bank. 
• Your minimum monthly payment for those 30 years would be close to $1700.  (not incl tax/insur)
• Side note: In order for that to be 35% of your net income, you will need to bring home about $5000/month after tax. 

Reduce the length of that mortgage to 25 years and you will pay only $169,050 worth of interest.

• You will have actually paid $569,050 back to the bank.
• Your payments will increase to $1900 per month.  
• But, the extra $200 more per month, saved nearly $38,000 in interest payments.  

You can see how that game works.  The less you borrow at the lower rate, and the faster you pay it back, the more you save in the long run.  Obviously this example is a bit ideal.  Many things can affect your interest rate including economic factors, amount of downpayment, your debt load and your credit rating.

However there are some things you can do.  Lets look back at Tip#4 and Tip#5.

Tip#4 Pay an extra $100 on your mortgage each month
On a $400,000 house at 3% interest rate for 30 years, by paying an extra $100/month, you will pay $187,021 in interest.  That saves you an extra $20,000 in interest. You will also pay back your mortgage in 27.4 years instead of 30.

Tip#5 Do semi monthly payments if you can
On a $400,000 house at 3% interest rate for 30 years, by doing semi monthly payments, you will only pay $179,260 in interest. You still pay close to $1700/month, but instead of doing it all in one big lump sum, you will make two payments of $850. That will save you $28,850 in interest!

Now if you do Tip#4 and Tip#5 together (if your mortgage will let you that is, I'm sure they hate this!)
On a $400,000 house at 3% interest rate for 30 years, paying semi monthly and adding an extra $50 to each payment (for a total of $100/month) you will pay $170,401 of interest.  This will save you $36,709 in interest.  

That is amortization in a nut shell.

If you would like to try more figures with amortization, try this calculator
If you have excel, you can also create them and save them.  Right click on your sheet tab, select insert, select spreadsheet solutions (tab) and choose "Loan Amortization".

If you have any tips, feel free to share! Ending slavery to mortgages and big business is a good thing. :)

How much does an Earthship cost?

Earthships can be reasonable or expensive.  A lot of it depends on you, of course.

My friends over at Off The Grid Build gave a the break down on what it cost them to build a global model Earthship.  I think it might have been studio sized, but don't quote me on that:

Accounting


As of Dec 11, 2012, their build cost:


Total Supplies: $78,692.92 (including tax, excluding land)
Total Services: $33,125.69
Projected Project Total: $115,000 (including tax, excluding land)



While this may sound reasonable, you do have to consider that these guys are experts.  At least from my perspective.  When I watch them do plumbing, concrete prep, footings, framing and other stuff, I realize how much I don't know and how much I won't be able to do by myself.  While I'm always willing to learn, I have to accept that I can't know everything or become an expert over night.

My very rough guess is that if you are anything like me, add $100,000 onto that bill for all the extra labour and contractors you will have to hire.  Maybe more?  With the cost of land, you could easily top $500,000.  That would be a crazy mortgage payment for the average Joe.

 The moral of the story is, the more you are willing and able to do yourself, the better off you will be financially.  Not to mention, the less you owe, the faster you can pay it off and have freedom!

Home Power Magazine

If you want to learn more about the various sources of renewable power, make sure to check out and subscribe to:

Home Power Magazine

The digital version is fairly inexpensive. They are a great resource for the various forms of solar, wind and other sources of renewable energy.  They also discuss vehicles, home efficiency and all the details in between.  The reading level varies, from very scientific to beginner, so there is something for everyone.

LED incandescent light bulb: A great choice for your EarthShip!

January 21, 2013 (New York Times)

LEDs Emerge as a Popular ‘Green’ Lighting

By DIANE CARDWELL

The lighting industry has finally come up with an energy-efficient replacement for the standard incandescent bulb that people actually seem to like: the LED bulb.

Although priced at around 20 times more than the old-fashioned incandescents, bulbs based on LEDs, or light-emitting diodes, last much longer and use far less electricity, a saving that homeowners are beginning to recognize. Prices for the bulbs are falling steadily as retailers like Home Depot and Lowe’s sell them aggressively and manufacturers improve the technology.

And because the light in LED bulbs comes from chips, companies have been able to develop software applications that let users control the bulbs, even change the color of the light, with tablets and smartphones. Apple sells a three-pack of such bulbs, made by Philips, with the hardware to operate them for about $200.

“You’re seeing all of your growth in the LED category,” said Brad Paulsen, a Home Depot merchant. “We absolutely expect LED technology in four or five years to be the most popular lighting technology that’s out there.”

Last year, LED sales, though small at about 3 percent of the residential market by some estimates, grew faster than those of any other lighting technology, according to retailers and analysts.

Among A-type bulbs, the most common, LEDs will outsell incandescents in North America in 2014, according to projections by IMS Research, an electronics research firm that is now part of IHS Inc. And LEDs will become the most popular A-type technology by 2016, with North American shipments reaching almost 370 million, a more than tenfold increase from the roughly 33 million shipped last year, the firm estimates.

Already at Philips, LEDs were responsible for 20 percent of lighting sales last year, according to Ed Crawford, general manager of the lamps division.

Incandescent bulbs, while cheap, are very inefficient, wasting most of their energy as heat as they pump electricity into filaments to make them glow. The government has been pushing consumers to other technologies for several years, in part by phasing out the manufacture or import of the least efficient bulbs.

The first big alternative to emerge, compact fluorescent bulbs, has left many consumers dissatisfied. The light quality is seen as harsher, the bulbs can be slow to warm up and difficult to dim, and they contain toxic materials.

LEDs are more expensive, but offer better light quality and more flexibility. And thanks to heavy marketing by retailers, customers are beginning to discover their appeal.

“The LED you buy, even though you pay even $25 or $30, it’ll last like nine or 10 years,” said Tariq Syed, a machinist at an electrical utility who was eyeing LEDs at the Home Depot in Vauxhall, N.J., on Thursday. “And environmentally, it’s safe, too.”

Bulb manufacturers are rushing into the market, sending prices falling. Home Depot sells some 40-watt-equivalent bulbs for about $10.

“Most of the manufacturers are moving toward new designs in solid state lighting, as are we,” said Jim Crowcroft, vice president for market development at TCP, a company based outside Cleveland that manufactures energy-efficient lighting under its own brand as well as the house brands of several mass retailers.

Although the company still sells far more compact fluorescent lights, growth in that business has slowed, while demand for LEDs is skyrocketing, he said. “In the long run, solid-state lighting is going to make a whole lot of sense for almost every lighting application.”

For the manufacturers, LEDs pose a new challenge. They offer higher profit margins, but because they can last for decades, people will be buying fewer bulbs — of any sort. The Energy Information Administration estimates that total light bulb sales will fall by almost 40 percent by 2015, to just under a billion from 1.52 billion bulbs, and continue their decline to about 530 million by 2035, with LEDs making up a steadily increasing portion of the market.

As a result, many companies are competing to establish themselves as popular brands.

“The company that can dominate will make a lot of money,” said Philip Smallwood, senior lighting market analyst at IMS Research. “So it’s a big push to get into it early.”

With demand growing for LEDs in other uses — like backlighted phone and computer screens, automotive lights and street lamps — manufacturers have been able to develop their technologies and benefit from economies of scale to help bring the price down, said Thomas J. Pincince, the chief executive of Digital Lumens, which sells LED systems to businesses.

In the commercial and industrial sector, use of LEDs is more common than in homes, analysts say, because companies are more likely to do the long-term cost-benefit analysis of buying lighting than homeowners, who are still largely driven by the upfront price.

Goldman Sachs estimates that in the residential sector, penetration of LEDs will rise from 3 percent last year to 16 percent in 2015, still lagging the commercial and industrial sector as well as outdoor applications like parking lots and billboards.

But as the cost of an LED approaches $10 — a tipping point that would speed mass adoption, according to Mr. Smallwood — retailers have been stepping up their efforts to market the lights, often with proprietary brands like Home Depot’s EcoSmart jostling for shelf space with established names like Philips and General Electric.

“One day I randomly walked into a Home Depot and thought, ‘LED — when did that happen?’ ” said Clayton Morris, 36, a host of “Fox & Friends Weekend,” who was buying the bulbs in Vauxhall as part of his project to slowly replace the incandescents in his Maplewood home. “It’s a hefty investment upfront,” he said, “but it just seemed like a great savings.”

At the same time, in an effort to transform light bulbs from a cheap, disposable product into something that consumers might show off to their friends, manufacturers have been adding functions that could ultimately fit into a larger home automation system. Often Bluetooth- or Wi-Fi-enabled, a new generation of LED bulbs offers all manner of new remote controls and automatic responses. The Philips Hue, sold exclusively at Apple stores for the next month, can change colors along a broad spectrum and offers settings that can mimic sunrise in the morning or use a special “light recipe” intended to raise energy levels. The bulb has been a big hit, executives say, attracting a host of software developers who have created free apps for new features, like making it respond to voices or music. The bulb can also tie into the Nest thermostat, a so-called smart device from Apple alumni who helped develop the iPod, that learns consumer heating and cooling patterns and adjusts to them automatically.

“For me, it was, ‘Wow, this is really cool, this is piece of futuristic technology that I could have,’ ” said Jonathan Crosby, 25, who works at an Apple store in the Bay Area and learned about the Hue because of all the customers asking about it. He bought starter kits for himself and an uncle, purchases he might not have made without the hefty employee discount.

The bulbs, he said, offer a hint of the lifestyle of people like Bill Gates of Microsoft, who lives in a house loaded with high-tech conveniences. “It’s amazing, like the futuristic Bill Gates is now me,” Mr. Crosby said.

Dirt bags!

There is always the option of building a hybrid home; from straw bales to dirt bags.  I recently came across someone local who did a complete build with earth bags.  Much like an Earthship they bermed their home.  Beyond that, I don't know much.

http://canadiandirtbags.com/

The negatives of Earthships

I was recently diverted to a blog post regarding the "negatives" about Earthships.

http://www.archinia.com/about-us/publications/215-solving-the-earthship-enigma.html

It was bit unnerving to read, but something I really wanted to know. It seems like people build them and then live silently ever after.  Any post interviews are usually done with extreme eco lovers who have lower standards than most folks.

Rather than me guessing, I now have a list of possible pros and cons, problems and solutions.

Ultimately, Earthships aren't perfect and the default may not even be possible in certain climates.  They tend to do well in "ideal" climates where the temperature doesn't vary a lot, the humidity isn't extreme and it rains regularly.  Sounds like a normal house lol  So how does one make an Earthship work in an extreme climate?

Here were some of my thoughts on modifications for my own climate:

Location: 
They suggested to not build one in a cool climate at all.  And to especially not build in high humidity or low rain.

Well I live in Canada.  The temperature can go as low as -40C in the winter (usually -20C) and up to +30C in summer (usually low 20's).  Rain and humidity aren't really a problem for most of Canada.  But ice, snow and wind are a problem.

I'm assuming that they are meaning this statement for the basic/standard Earthship.  That makes sense.  All I need to do is plan some modifications.  I already assumed that it might be wise to have backup systems, such as underfloor heating or fireplace/stove.  

Orientation toward the south will be a given since I want passive thermal heating to be the main source when possible.

Siting:
My design already incorporated south entrances for a snowy climate, which fits their suggestions. I also like evergreens and trees, which make good wind breaks like they say.  That's common knowledge up here. I have no problem putting in trees!

For overheating, we only have maybe one or two weeks a year where it gets uncomfortably hot.  They suggest overhangs or leafy trees.  The problem is the possibility of interfering with the heating, which is a bigger problem overall. I think I may consider retractable awnings if heat is truly an issue.

Structure:
They suggest to skip the tires.  I checked into tireless rammed earth walls and either you do it yourself (I'm not incredibly skilled) or you hire someone.  Up here, contracting for rammed earth walls costs 20-30% more than a conventional house.  No thanks, this is expensive enough. I know I can do tires though.  So tires it will be.  The concern mainly seems to be off gassing, for which there is no clear answer. I will have to consult others.
Note: I've researched more on off gassing.  It still doesn't seem to be a problem, due to the fact that used tires had plenty of time to "off gas" while they were being used, and they are being packed in several inches of covering material.  In terms of skipping the tires, the alternatives such as cement bricks or rammed walls are incredibly expensive, as you will see in the later blog entries. There are ways to make the tire pounding easier, as well.

Design:
Points noted.  I plan on modifying my drawings and posting them later.  I will keep these things in mind, but I'm skipping the part on sleeping pods.

Windows and Doors:

The "no sloping window walls" is confusing.  I'm not sure what they are referring to.  The only sloping window wall I can think of is the one on the outside.  It helps with the passive heating design, so eliminating it could be detrimental to this far north.  Vertical is certainly nicer looking, but it doesn't allow in as much sun and is better for hot climates.

However, if they are referring to the problems with humidity and leakage on the slanting windows, the architect I'm hiring has already fixed those issues so.....no big deal.  He has also fixed issues with the roof "kick up" in a standard Earthship; by eliminating it.

I didn't realize the part about the closing off the greenhouse though.  I made my plans fairly open concept.  Therefore I guess I will have to ditch that and close the space off a bit.  Not a problem.  Note: I contacted the architect and he said that closing off the green house can pose problems with "egress" in the building code (google it).  He says they can get away with it in New Mexico, but it's a lot harder to do such a thing elsewhere, including Canada.  Therefore, I had to go back to the open concept again. 

I also don't plan on using exterior bottle walls, which can pose an insulation/cold problem.  I will just use them on the inside. But I love the idea of solatubes for the back rooms.

Facebook Communities

There are quite a few Earthship builds and communities on Facebook.  For Canadians, there are also a few as well!

Check out:

Alberta Earthship Community

Earthship Interested

Manitoba Earthship

Darfield Earthship (BC)