Financing Your Green Home

This post originally appeared on the Carbon Talks blog.

In the world of Monopoly – the board game, not the concept – a green house was the only choice. Given the cut-throat capitalistic tendencies of Monopolites such as Rich Uncle Pennybags, I think we can safely assume it had nothing to do with energy efficiency. In reality, green houses remain anything but common.

In fact, energy efficiency is often seen as a luxury for those lucky enough to move into high-end LEED platinum certified condominiums, and the average homeowner is stuck paying high electricity bills, dealing with draughty windows, and wasting many apples-worth of kilowatt hours on inefficient water boilers. While energy efficiency in homes continues to rise due to more modern building materials, the truly innovative measures – grey-water systemsgreen roofsgeoexchange technology, or low-VOC interiors – continue to incur a cost premium. While the net payout of such measures may be positive over a few years, for the average home buyer, or homeowner interested in renovations, it means not much more than a higher price tag.

For those consumers who are looking to green their homes, for financial or environmental reasons, banks have seen an opportunity. The major Canadian banks are currently offering several mortgage opportunities that at least purport to be designed around energy efficiency and environmental sustainability; the degree to which these mortgages are economically sensible rather than simply greenwashing is up for debate.

  • BMO’s Eco Smart Mortgage gives a relatively low rate with a long amortization period, but has a series of requirements. For example, a single family home would need to meet 6 of 7 features, including a high-efficiency heating system, ENERGY STAR windows, or good quality attic insulation.
  • The RBC Energy Saver Mortgage uses a different strategy, offering a $300 rebate on a home energy audit. However the mortgage offerings themselves are standard fixed rate or variable rate mortgages with no added benefits.
  • While TD Canada Trust has offered green mortgages in the past, it is unclear whether they make up part of their mortgage offerings any longer.

The logic behind these tools is that due to increased energy efficiency, homeowners will pay less on their monthly bills and therefore free up cash to pay down their mortgage. This is based on the assumption that extra room in the budget will automatically lead to larger mortgage payments.

Other options for financing green homes include:

  • PACE or PAPER programs, whereby a loan for retrofits is repaid via an assessment on property taxes;
  • Tax credits for homes that perform above a certain threshold, though this would require ongoing monitoring measured against some performance standard like the BOMA BESt program (not currently available for single-family homes);
  • Simple rebates for homeowners who perform an energy audit and develop a plan for improving energy efficiency

All of these options have their drawbacks. PACE depends on the ability of local government to secure loans, yearly tax credits would involve a complicated system of monitoring and verification, and rebates require consistent political will. Ultimately, homeowners must decide what is in their best interest (pun intended) whether that be based on financial considerations, or a desire to do their part for emissions reductions.

Green mortgages and other financial instruments may be possible options, but there’s nothing stopping an individual from paying for an audit, doing up a simple retrofit plan with a reasonable budget, and marching into the local bank to request a loan. Maybe all we need is a push out the door.

(Feature photo courtesy of woodleywonderworks/Flickr)