An energy efficient mortgage (EEM) (or "green mortgage")[1] is a loan product that allows borrowers to reduce their utility bill costs by allowing them to finance the cost of improving the energy-efficiency of the real estate property, at the point of the house purchase or the refinancing of existing housing.[2] In practice, energy efficient mortgages can take the form of a standard mortgage (which includes the cost of house purchase and the renovation) or a second mortgage which covers only the cost of the renovation.
First introduced in 1980, EEMs are currently sponsored by all mortgage programs insured by the U.S. federal government. To date, the popularity of the product has been somewhat limited: The New York Times estimates less than 1% of all U.S. home loans are EEMs.[3]
In the European Union, the Energy Efficient Mortgage Initiative has developed an industry-led label, which is currently being used by 37 banks.[4][5][6] its definition requires loans to enable an energy efficiency improvement of at least 30%, which is aligned with the EU Taxonomy of sustainable activities.[7] The European Commission has announced it will consider promoting green loans and green mortgages in the coming months as part of its sustainable finance action plan.[8]
Several studies have found evidence of a correlation between energy efficiency and credit risk, meaning that borrowers of a green mortgages are less likely to fall into insolvency.[9][10][11] The banking industry argues that such evidence justifies both a reduction in the interest rate for consumers,[12] but also a reduction in the amount of capital banks have to set aside under prudential regulation, the so-called "green supporting factor". The European Banking Authority is currently studying whether prudential rules should be adjusted to reflect this.[13]
Borrowers who qualify for an EEM usually need to complete a home inspection by an energy rater working off qualification standards created by the U.S. Department of Energy. The results of this energy audit can then be used when applying for an EEM.[14]
References
edit- ^ "How to cultivate a 'green mortgage'". NBC News. 25 April 2008. Archived from the original on 5 March 2016. Retrieved 15 February 2011.
- ^ ""'Green mortgages' taking root," The Boston Globe". Retrieved 15 November 2023.
- ^ Tedeschi, Bob (10 September 2006). "Saving Both Money and Energy". Retrieved 15 November 2023 – via NYTimes.com.
- ^ Simon, Frédéric (24 September 2018). "More banks join EU-backed pilot scheme for green mortgages". www.euractiv.com. Retrieved 15 May 2022.
- ^ "Issuer directory :: EEM Label". www.energy-efficient-mortgage-label.org. Retrieved 15 May 2022.
- ^ Norton, Hannah (27 October 2021). "Green mortgages to help EU achieve climate goals". www.euractiv.com. Retrieved 15 May 2022.
- ^ EEMI Definition energyefficientmortgages.eu
- ^ Simon, Frédéric (30 June 2021). "Draft EU plan outlines regulatory roadmap for green finance". www.euractiv.com. Retrieved 15 May 2022.
- ^ "New report: Final Report on Risk Assessment". ec.europa.eu. Retrieved 15 May 2022.
- ^ Cespedes-Lopez, Maria-Francisca; Mora-Garcia, Raul-Tomas; Perez-Sanchez, V. Raul; Perez-Sanchez, Juan-Carlos (January 2019). "Meta-Analysis of Price Premiums in Housing with Energy Performance Certificates (EPC)". Sustainability. 11 (22): 6303. doi:10.3390/su11226303. hdl:10045/98939. ISSN 2071-1050.
- ^ Fizaine, Florian; Voye, Pierre; Baumont, Catherine (2018). "Les études hédoniques soutiennent-elles une valeur verte élevée dans le bâtiment ? Une réponse par la méta-analyse". Revue d'Économie Politique (in French). 128 (5).
- ^ Crisp, James (15 June 2016). "Homeowners offered cheaper mortgages in return for energy efficiency renovations". www.euractiv.com. Retrieved 15 May 2022.
- ^ "Discussion paper on the role of environmental risks in the prudential framework". European Banking Authority. 2 May 2022. Retrieved 15 May 2022.
- ^ ”Energy-efficient mortgage offers savings,” The Olympian (McClatchy-Tribune News Service) [1][permanent dead link]
External links
edit- U.S. Department of Housing & Urban Development's Energy Efficient Mortgages Program HUD FHA Insured Energy Efficient Mortgages
- CNN coverage of EEMs Embrace your environmental side and get a better house - Nov. 2, 2005