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Energy Efficient Financing

If you're looking to finance energy efficient improvements for your home, we encourage you to do your homework and talk with a financial or trusted advisor about the most appropriate option for you. This conversation is important. Some financing options can expose you to significant risks – including the inability to refinance or sell your home – and can come with unfavorable interest rates, fees and repayment terms.

If you've already secured financing through one of these programs, including PACE, you may have options to pay them off and are encouraged to call your lender.

When reviewing your financing options, be sure to ask yourself -- and your advisor -- the following questions to avoid future issues:

  • Will the loan be repaid through your property taxes? If the answer is yes, then the loan may be taking a priority lien position – you should consult with your financial advisor for guidance.  Priority lien position means that the particular loan, no matter the size, takes precedence over your mortgage and what you owe your mortgage lender.  This can result in repayment terms that will seriously impact the value and marketability of your home in the following ways:
    • If you have a conforming, conventional mortgage, having a lien for energy efficiency improvements in priority position (ahead of your mortgage) is a violation of your mortgage terms, putting you at legal and financial risk.
    • Your home may not be eligible for the majority of today's financing options. This lien may make it extremely difficult to refinance your loan or sell your home, as that loan – in priority position – will have to be paid in full before closing
    • The tax bill on your home will likely be higher compared to similar homes in your neighborhood with the same energy upgrades but without the lien.
  • Can I afford this loan and is the repayment plan realistic? As with any loan, you should shop around for a financing option that offers reasonable fees, affordable interest rates and practical repayment terms. Depending on the scale of your home improvements (replacing a water heater vs. installing solar panels) there are many sensible financing options that offer more affordable rates and will not put you at risk in the future.
  • Are there enough protections in place? Is the company offering you the financing option checking your ability to repay the loan?  It's important that they have comprehensive checks and balances in place to ensure that you aren't taking on a loan you cannot afford.  As with any loan, you should be wary of financing programs that don't require detailed information regarding your financial situation before approving the loan. 

There are several energy efficient financing options that can meet your needs while protecting your mortgage terms and the marketability of your home. Talk with a trusted advisor such as a certified housing counselor about affordable and suitable financing solutions, including those offered by Freddie Mac.

 

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