Lenders believe energy-efficient homeowners are less likely to default on mortgage payments
With all the bad news about mortgages, it is time for some good news: Mortgages that promote energy efficiency are on the rise.
The basic idea is simple. If you make your home more energy efficient, you reduce your monthly energy bill. And that means you have more money to pay your mortgage, and are less likely to default, so lenders are wisely encouraging this:
The Wall Street Journal has a very good article on this:
While energy-efficient mortgages have been available from many lenders for some time, they are receiving renewed attention. They allow borrowers to qualify for bigger loans because lenders permit the estimated savings on utility bills to be added to the borrower’s qualifying income. For example, energy-efficient improvements could save a homeowner $50 a month. The $600 extra a year could allow a person to borrow about $10,000 more on a 30-year mortgage, depending on the interest rate, says Mark Wolfe, executive director of the Energy Programs Consortium, a Washington, D.C.-based nonprofit that helps coordinate state and federal energy policy.
The new products and incentives are aimed at a market worried about increasingly high energy prices. And amid the turmoil in subprime lending, analysts say, energy-efficient mortgages can be a more secure way to qualify marginal borrowers, since these homeowners are saving money on utility bills.
The energy-efficient products are structured like traditional adjustable or fixed-rate mortgages, yet they incorporate the cost of energy-efficient improvements, such as insulation, windows and cooling systems, into a mortgage so customers can pay these costs over the life of the loan. When customers wish to a buy a home, they have an energy audit done by a certified third party, which evaluates the home and creates a list of energy-efficient improvements that can save the homeowner money on utility bills. The lender — which will identify a certified auditor — puts the money needed for the improvements in an escrow account and the improvements are made after the home is purchased.
Kudos to the lenders who are promoting this win-win strategy.