Green mortgages or energy-efficient mortgages allow borrowers to finance certain green or energy-efficient upgrades at the same terms and rates as their home purchase. This allows homebuyers to access certain upgrades sooner, reducing their monthly energy costs while making environmentally-friendly upgrades. Green mortgages are proving increasingly advantageous for would-be homebuyers due to increased incentives for energy-efficient upgrades resulting from the Inflation Reduction Act. The Act provides homeowners with tax credit of up to $2,000 and additional rebates depending on income, from 50%-100% of a unit’s cost up to $8,000 for those making energy-saving improvements.
Some restrictions on green mortgages include what types of improvements can be financed and mortgage cap limits. For example, Fannie and Freddie Mac’s specifications suggest the maximum available energy financing is 15% of the “as completed” value of the property, and a home energy assessment by a trained professional is a necessary part of the application process. Homeowners must be committed to finding contractors and completing the work on an existing structure within a set period, generally three to six months, to comply with the terms of the mortgage.
Green mortgages may be beneficial for inexperienced or time-poor homebuyers, as trained home energy assessors can identify potential energy-saving improvements and lenders can benefit prospective buyers by advising on how to maximise benefits. Refinancing remains an option for homeowners looking to make energy-efficient upgrades, although it will become increasingly expensive with rising interest rates. However, refinancing may make sense in some situations, such as for first-time homebuyers who could not afford improvements when they first purchased their property and who have not owned it long enough to take out a home equity loan.
Green mortgages offer homeowners flexibility in financing energy-efficient improvements and can benefit homeowners by reducing the cost of utility bills. The incentives offered by the Inflation Reduction Act make green mortgages an increasingly attractive option for homeowners to make environmental improvements on par with regular housing purchases.