A green loan is a type of personal loan meant specifically to be used for energy efficiency for your home, which can ultimately provide cost savings. These are typically larger scale projects that require significant investment for the cost-conscious and environmentally aware homeowner.
Obviously green loans are probably not necessary to install a low-flow toilet, put up a clothes line or build a rain garden.
However, major projects such as solar installations, geothermal heat pumps or triple-pane windows require a larger upfront investment.
A green loan may well be worth it in the long run when you consider savings on monthly bills, tax credits and sustainability.
They’re typically offered by banks, peer-to-peer lenders and other specialty lenders focused solely on environmental loans. As with all loans, you should be very careful to make sure you’re working with a credible lender that provides excellent customer support.
When to Use Green Loans
According to HomeAdvisor.com, many people really start thinking green when they’re doing major renovations on multiple rooms.
This gives you the opportunity to make your home eco-friendly from top to bottom with projects that could include:
- New window designs to increase natural light
- Added insulation, including for walls, floors and ceilings
- ENERGY STAR rated HVAC systems
Solar panels for your roof is another common application where a green loan might come in handy. More than 1 million homes have solar panels and that number is growing rapidly, according to a Business Insider report.
While the cost of installation can be in the neighborhood of $30,000 for the average home in the U.S., the tradeoff is you’re taking control of your energy supply, eventually saving money.
Your savings could vary widely depending on where you live, but some estimates suggest anywhere between $10,000 and $70,000 over a 25-year period.
Solar energy systems purchased in 2017 are also eligible for a federal tax credit.
Water Saving Systems
Water costs the average household more than $1,000 per year, but they could save as much as $350 by updating their home’s water-saving technology, according to WaterSense, a partnership program with the U.S. Environmental Protection Agency.
The following technologies could make your home more water-efficient:
- Rain sensors
- Irrigation controllers
- Soil moisture sensors
These are essentially pumps that use ground temperature to heat/cool your house or provide hot water. The costs are usually at least double a traditional heating/cooling system, however they save energy over the course of 5 to 10 years.
The U.S. Department of Energy reports that there are roughly 50,000 geothermal heat pumps installed every year.
The costs can range from $10,000-$25,000, but the savings can be as much as $1,500 per year. The goal for many people is to save enough over time to outweigh the initial costs.
Some homeowners may want to round out an eco-friendly home with energy-efficient appliances such as the washer and dryer, refrigerator, freezer and dishwasher. These usually come with an ENERGY STAR certification.
Depending on how you use the appliances, you could save hundreds of dollars per year. New appliances could also increase the value of your home.
What Are the Terms of a Green Loan?
Let’s say you want to take out a green loan for $20,000 to make some major energy upgrades to your house.
Using our Discover Personal Loans Calculator, you can choose the time period that works best for you. Keep in mind that if you pay the loan off in a shorter amount of time, the monthly payments will be higher, however the total interest paid will be less. If you pay it off over a longer period of time, you’ll have lower monthly payments but a slightly higher total interest amount.
When taking out a green loan, you’ll also want to make sure the loan provider includes:
- No origination fees
- No closing costs
- No pre-payment penalties
Those additional costs can add up quickly if you’re not careful, and not every lender provides those benefits.
How Much Can You Save With a Green Home?
It’s difficult to put an exact number on just how much you save in the long run by making your home eco-friendly. But the U.S. Green Building Council (USGBC) gives us a number of statistics that suggest how significant that savings could become.
The USGBC estimates that by 2018, 40% of the housing market will be green, single-family homes, and 84% will have sustainable features.
Furthermore, according to the USGBC:
- The average household spends $2,150 per year on energy bills, so consider how much you could lower costs with a significant reduction in energy use.
- More than half of consumers rank energy-efficient properties as a top requirement when purchasing a home.
- There is evidence that homes with sustainable features are selling at higher prices than conventional homes, and the upfront costs can be recouped relatively quickly.
The Overall Advantages
There are many advantages to creating a green home environment – you’re creating a more comfortable place to live and cutting down on your carbon footprint, as well as hopefully putting money back in your pocket as the years go by.
While creating a green home can be a big and expensive project, green loans are one way to finance a more efficient future.