An energy efficient mortgage (EEM) (or "green mortgage") 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. 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 Second mortgages, commonly referred to as junior liens, are loans secured by a property in addition to the primary mortgage. Depending on the time at which the second mortgage is originated, the loan can be structured as either a standalone secon ...

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 ''The New York Times'' (''the Times'', ''NYT'', or the Gray Lady) is a daily newspaper based in New York City with a worldwide readership reported in 2020 to comprise a declining 840,000 paid print subscribers, and a growing 6 million paid d ...

'' estimates less than 1% of all U.S. home loans are EEMs. In the European Union, the Energy Efficient Mortgage Initiative has developed an industry-led label, which is currently being used by 37 banks. its definition requires loans to enable an energy efficiency improvement of at least 30%, which is aligned with the EU Taxonomy of sustainable activities. The European Commission has announced it will consider promoting green loans and green mortgages in the coming months as part of its

sustainable finance Sustainable finance is the set of financial regulations, standards, norms and products that pursue an environmental objective. It allows the financial system to connect with the economy and its populations by financing its agents while maintaining a ...

action plan. 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. The banking industry argues that such evidence justifies both a reduction in the interest rate for consumers, 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. 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.”Energy-efficient mortgage offers savings,” The Olympian (McClatchy-Tribune News Service

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References

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External links

*U.S. Department of Housing & Urban Development's Energy Efficient Mortgages Progra

*CNN coverage of EEM

Mortgage Energy conservation