Is There a Link Between Energy Efficient Homes and Mortgage Rates?
If you are considering buying an energy efficient home or you already own one, is there less chances of you defaulting on your mortgage? Some wonder if there is a link between energy efficient homes and you being able to pay your loan on time.
The University of North Carolina conducted a new study that shows us that yes; you are less likely to default on your mortgage if you own an energy efficient home.
In fact, this study showed a one-third lower mortgage default rate for ENERGY STAR-rated, energy efficient homes. This should be a factor that Congress and lenders should take into consideration when they make mortgage loans and policies. The study, ‘Home Energy Efficiency and Mortgage Risks‘, came out on March 19.
All across the country there were 71,000 sample home loans (commenced between 2002 – 2012) that were used in the study. Researchers found that on average 32 percent of mortgages on homes that had Energy Star certifications were less likely to default that were compared to no energy-efficiency improvement homes. Newly built or renovated Energy Star homes were shown to have a documentable savings of 15 percent or more on energy bills than those homes with little energy improvements.
What is the Reason for this?
According to the Institute for Market Transformation’s executive director, Cliff Majersik, since owners of energy-efficient homes tend to save more on their energy bills, they are able to save money to put towards their mortgage payment.
Since a lot of people might not believe that energy-efficient homes can have a positive impact on mortgage rates, the researchers put in a great deal of effort to eliminate other factors that could have had this impact in mortgage default rates.
For instance, the study looked at the neighborhood, home size, home value, income level, credit scores, unemployment rates, and even weather conditions — all factors that could potentially lead to unexpected expenses. After the researchers went through every one of these factors, it was found that energy efficiency and lower mortgage default rates were the only true connection.
However, energy efficiency isn’t really factored into the mortgage system, and you will most likely not find many lenders that will offer you a better mortgage rate simply by showing them documentation of money saved on utility bills.
The study’s sponsors and authors feel that lenders should indeed begin to factor energy efficiency into their quotes. In fact, they have already started to meet up with mortgage industry officials, the government and Congress to suggest how they can do it. They argue that if lenders cannot offer a lower interest rate, they should at least provide a break on debt-to-income ratios or upfront fees or lower down payments to those who show significant utility bill savings.
You never know if or when they might make this type of decision, therefore, it’s important that you keep your home as energy efficient as you can and a whole house fan can improve the efficiency of your home’s cooling, which can add to your money savings and ability to pay your mortgage month after month.