With more people making the decision to invest in energy efficient homes, I’ve been reading more about energy efficient mortgages. Also called Green Mortgages, home owners are able to finance energy saving upgrades and pay for them over the life of the loan while enjoying lower utility bills.

Why would a bank want to make a Green Mortgage?

1. The loan amount is higher. The energy saving components of the house add to the total amount of the mortgage. Simply, the bank earns more interest.
2. The homeowner’s credit worthiness remains the same. The bank is willing to make a higher loan because the utility bills will be lower. The home owner’s ability to pay the loan remains high because their total cash outflow each month stays roughly the same. Essentially, the home owner trades lower utility bills for a higher mortgage payment. The bank gets the increased revenue, while the utility company loses revenue. Sounds like a good deal for the bank.
3. Good public relations for the bank.

The key difference in qualifying for an Energy Efficient Mortgage is that the house (or house plans) must undergo an energy audit. The audit will reveal ways to improve the energy savings in the home. Mortgages backed by FHA, VA, Fannie Mae, or other government program each have their own requirements. For more information on the different requirements of Energy Efficient Mortgages, please review the Energy Starsite.

MSNBC published a good article on green mortgages recently. I think the concept is great. However, personally I didn’t have the need to get an energy efficient mortgage. The additional costs that we incurred to install the energy saving components in our house were only around $15,000. We offset these costs by reducing costs in other areas. So, our total cost didn’t go up because we constructed an energy efficient home.

Conclusion: Green mortgages are a great concept for people who need them. However, I’m a big believer that homeowners can construct or remodel homes in a manner that won’t break the bank. By making smart choices, you can equip your home to save energy while still keeping costs low.

Photo credit:   pnwra