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Energy Efficiency Loans: A Smart Investment for Homeowners, Lenders, and the Environment

Energy efficiency loans generally refer to loans used to finance home efficiency projects, namely, projects that are expected to reduce the energy load of a home. These may include upgrades to heating and cooling equipment, appliances, water heaters, as well as insulation and air sealing efforts.

Today, homeowners generally finance home upgrades using savings, traditional credit cards, personal loans, or home equity lines. Banks and credit unions lending to homeowners generally consider these home efficiency loans as personal loans - but should there be a distinction?

We think so. 

Home efficiency comes with an upfront cost, but, if calibrated correctly based on the specific home, those upgrades save homeowners money on monthly and annual utilities bills. In addition to the savings, many efficiency projects are eligible for rebates and tax credits sponsored by utility and government programs. Both the recurring savings and the one-time rebates and tax credits reduce repayment strain (and debt) for the borrower and can increase their ability to repay the loan. 

In fact, energy efficiency loan borrowers have a lower delinquency rate than comparable debt products, including collateralized auto loans, based on historical analysis by SEE Action, facilitated by the Department of Energy and EPA.

Energy efficiency investments also prepare the home for increasing weather events, improve health and comfort, and add to the long term value of the home. 

Energy efficiency loans for homeowners are a win-win-win. Savings and benefits for the homeowner, risk adjusted lending for banks, and emissions reductions for communities.


Sources: This article includes information sourced from and published in Long-Term Performance of Energy Efficiency Loan Portfolios, which was developed as a product of the State and Local Energy Efficiency Action Network (SEE Action), facilitated by the U.S. Department of Energy and the U.S. Environmental Protection.


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