A new trend in banking is allowing some borrowers to cut down on the cost of financing their loans to make environmentally friendly upgrades.Some banks and government-sponsored programs offer credits on closing costs or reduced interest rates if the money is going to be used to increase a home's energy efficiency. The combined factors of relatively low energy prices and reluctance to spend during the downturn have decreased demand for products related to energy efficiency and home renovations.
As a result, the incentives could help stimulate the market for new appliances and construction and installation services.
The Wall Street Journal also reports that an additional benefit offered by the incentives is the ability to report energy savings as income. The difference between the cost of energy bills before and after the improvements are made can be added to the total amount of qualifying income.
In order to be eligible for any of these cost-saving measures, potential borrowers often must first undergo a home energy audit. After the audit, homeowners agree reduce their consumption by a designated amount or agree to make predetermined changes to their properties.
Some programs, such as myEnergyloan, allow borrowers to lower the interest rates on their loans by increasing the efficiency of their homes. A "point" of energy improvement represents one one-hundredth of a point on the principal mortgage cost. Making numerous improvements can generate significant savings on a mortgage.
Upgrades and improvements won't necessarily generate savings, especially in the short-term, and Mark Wolfe, director of the Energy Programs Consortium, cautions consumers in the Wall Street Journal.
"In practice, if you have a reasonable house that's in reasonably good shape, look to save between 25% and 40% on your energy bills" to make the choice cost-effective. "Fifty percent or deeper savings require a bigger investment and a longer payback period," Wolfe adds.
--Bridget O'Sullivan
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