Green loans: What Are They?

Looking to save money on energy bills with an environmentally sustainable home?

If you plan on reducing your carbon footprint by installing solar panels or replacing your old water heater, you should consider a green loan. Although applying energy sufficient measures to your home can help save the environment, it can turn out to be costly. That is why some lenders offer green loans.

Although loans can be costly upfront, in the long term they’ll help you save money due to cheaper energy bills. As a result, you’d also be increasing the value of your home and reducing your carbon footprint.

How to get a green loan

You can get green financing through a government-insured loan program or some banks and credit unions. Green loans have eligibility requirements that you might need to meet when applying.

Green loans can have benefits that you wouldn’t have with normal loans. With green loans, you won’t need a home equity or a down payment. Additionally, some programs charge no nominal fees or prepayment penalties.

Green loans are suited for borrowers with a wider range of credit. They typically have lower interest rates compared to other types of loans. The interest rate on average falls below 5%.

The term period and borrowing amount for green loans vary depending on what’s necessary to increase your house’s sustainability measures. The first step to getting a green loan is your energy audit, which will determine the cost of improvements. The cost of improvements will be detailed in an energy audit, the first step to getting a green loan. An accredited contractor will be assigned to assess your home and determine its energy efficiency. They will assess wastage resources in your home, and how efficient technologies can be installed along with the costs.

Among the things that get assessed is how many people live in your household, how often they’re at home, which rooms use the most energy. You will most probably have the lender cover the costs of the contractor and the assessment. However, if those costs aren’t covered you can find a professional energy auditor.

What does a green loan cover?

Solar panels are usually the first thing people correlate with energy-efficient homes. However, there are other ways you could sustainably improve your home.

You can utilise green loans for any of the following:

• Solar panels and cool roofing
• Water-saving irrigation system
• Heating and cooling systems, like central air-conditioning or smart thermostats
• Window upgrades
• Insulation improvements
•  Efficient appliances, such as dishwashers and refrigerators.
• LED lighting
• Pool pumps
• Landscaping

Check out Australia’s guide to environmentally sustainable homes.

Green mortgages

Green mortgages are a form of green loan that aid with financing the costs of energy-efficient homes. Otherwise known as energy-efficient mortgages (EEM) or energy improvement mortgages (EIM), those loans help with purchasing certified greenhouses or sustainably renovating a home.

You can qualify for a higher mortgage with an EEM. That’s given the exception that you’ll be saving on energy bills, which results in more disposable income in the future. The lender will add the cost of upgrades to your mortgage, or if you’re purchasing an already green home, the lender will expand your qualifying debt-to-income ratio, which can help you get bigger mortgages.

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