“Going green” at home has taken on new meaning because of the “Green Mortgage” — also known as an Energy Efficient Mortgage (EEM). These loans finance residential energy efficiency upgrades and renewable energy systems — green improvements — that also save you cash (more green).
What they are and what they do
EEMs are available from several federal mortgage programs including FHA and VA loans and also in the form of conventional loans, not as second mortgages, but as add-ons to the primary loan. The conventional EEMs are the most generous — allowing up to 15 percent of the home’s appraised value to pay for green improvements, like solar paneling.
With a Green Mortgage you can improve your home with upgrades that you may have thought you couldn’t afford. They cover double-paned windows, tankless water heaters, modern HVAC systems, and new insulation. They can help you get money to invest in energy-efficient upgrades for a home purchase. Or, if you want to buy a house that is already energy efficient, they’ll help you to qualify for a larger mortgage to pay for it.
The cost of a Green Mortgage is subsidized by tax breaks which assess a borrower’s energy savings and lower utility bills. The conservation that can result is estimated by the Department of Energy to be as much as 20 percent on a typical utility bill.
The pros of subsidized energy savings: my experience
I was able to invest in energy savings improvements a few years ago when the various government tax incentives and utility subsidies were the most generous. The specific improvements were a new HVAC system and vinyl dual-pane windows and doors for my 1,000-square foot condo. And, by applying for the utility subsidy, the power company sent out an auditor to evaluate the house. A tech installed some insulation in the attic, sealed the doors and added a few other incidentals, for free.
As a result of the improvements, the home is far quieter and more comfortable. My utility bills have probably been reduced in the 20 percent range, as advertised. Other savings I experienced were roughly half the costs for labor and equipment on the HVAC and window/doors installations. These were the result of Federal and state tax breaks and grants from my utility company.
For the average homeowner, energy bills cost about $2,200 annually, according to the Department of Energy. Adding insulation and improving the sealing of your home can cut total energy costs by 10 percent, according to EPA estimates. Even just installing storm doors can make your home nearly 50 percent more efficient.
More potential energy savers include a programmable thermostat ($180 annual savings), replacing single-pane windows ($500 savings), solar water heaters ($140 savings) and efficient HVAC systems ($200 or more in annual savings), according to Energy Star.
In addition to generating savings, an Energy Efficient Mortgage also can help boost your home’s value. Home buyers are willing to pay for green improvements.
The cons of a Green Mortgage
Building these improvements into your home loan means you’re borrowing more money, which often means a higher monthly mortgage payment. For example, on a fixed-rate $200,000 mortgage at 4.75 percent, tacking on another $10,000 for energy-efficiency improvements would add about $50 to your principal and interest payment each month. The monthly energy savings should more than make up the difference. In fact, lenders will not close an Energy Efficient Mortgage unless it will result in cost savings. How much you save depends on the home, the type of improvements you choose and where you call home.
The climate region in which you live will be a huge factor in just how good a deal your Green Mortgage will be for you. Residents of extreme climates — whether cold or hot — will obviously benefit the most from energy savings. Residents in temperate climates won’t see nearly the savings and it will take many years of fractionally lower utility bills to make it pay off.
An Energy Efficient Mortgage may not be the answer for every family and every property. Consider and compare the numbers with other financing options such as a home equity line of credit (HELOC) or even a no- or low-interest credit card deal.
Bottom line, in all but the most temperate climes, a Green Mortgage can be a sound investment — saving you energy, money and adding value to your home.