Wanted: green mortgages
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30/11/2009 8:00:00 AM
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In the latest EnerQuality Green Building survey released in October, the certifying organization found 40 per cent of Ontario homebuyers were willing to pay an extra $10,000 for a green home in 2009 compared to 22 per cent in 2008. The survey also found that purchasers paid an average of $3,707 for energy efficient features in new homes this year, up $500 from last year despite the state of the economy.
But while the interest in having a greener home - along with a greener lifestyle in general - appears to be strong in Canada, the mortgage industry hasn't seen much action on the green product front. When following up on a story about green mortgages published early last year, CMP had trouble finding new products that fell into this category or promotion of these types of offerings.
"I think it's a lack of marketing on the part of the lenders that actually offer [green mortgages]," said Rowan Smith, a broker with The Mortgage Centre in Vancouver, a city with a government stated goal of being the greenest city in the world by 2020.
"If people knew more about it, I think there would be a much bigger demand. I don't think there's much awareness out there about the advantages of it."
Gordon Shields, executive director of the Net Zero Home Energy Coalition (an organization dedicated to research and programs for energy efficient buildings) also argued that lenders need to step up their efforts, saying he would like to see them offer more financing options for homeowners who want to invest in green technologies instead of simply giving rebates or discounts on posted rates.
"I think a green mortgage should be intended to help homeowners adopt what I would call advanced energy efficiency upgrades that are beyond what we see as mainstream energy efficiency standards," said Shields. "There's considerable room right now for banks to move into a new space where they offer truly green mortgages."
The options
Since the last time CMP checked on green mortgage offerings, the list appears to have remained almost unchanged. TD Canada Trust has continued its Green Mortgage and Green HELOC, which offer one per cent off the posted rate and an increased rebate of up to 1.5 per cent of the amount of the mortgage if the borrower makes Energy Star-qualified purchases on items like appliances and windows.
HLC offers CIBC's Enviro-Saver Mortgage, which provides rebates of up to $300 on a home energy evaluation and a report on the provincial and federal grants a borrower may qualify for. Citizen's Bank, which offered a green mortgage that included an energy audit and an option of a $10,000 line of credit to make upgrades, pulled out of the Canadian mortgage market earlier this year. Its parent company offers a low-interest loan called the Bright Ideas loan to make energy-efficient upgrades after having an audit done, but the product is only available in B.C.
On the mortgage insurance side, both CMHC and Genworth have similar programs in place to help homeowners who buy green homes or who want to make eco-friendly renovations. These programs include a 10 per cent refund on mortgage insurance premiums and the option to extend amortization without normal premium surcharges.
Both programs require new home purchases to be constructed under a specified list of eligible green building codes (which vary from province to province) or meet an EnerGuide rating off 77 (determined by a home energy assessment). For renovations, homeowners also need to have their home audited to ensure their improvements have increased to a minimum energy rating of 40 on the EnerGuide scale.
"In the last two years we've been getting more and more consumer inquiries about the program and more mortgage professionals are asking questions about it," said Eleanor Hughes, the acting manager of homeowner policy at CMHC, also noting the federal agency has expanded its list of qualifying green building programs. "We're continually reviewing the program and looking at ways to further support and encourage Canadians to consider attaining higher levels of energy efficiency in their housing choices."
What can be done?
To raise awareness about the benefits of green homes and offer more incentives for green purchases and renovations, Shields suggests banks compare and evaluate a base home and an advanced energy-efficient home on an operating cost level. The savings the customer who owns the energy-efficient home incurs should be taken into account as to how much more money they could be loaned from the bank to make upgrades.
Shields also said banks need to be educated on the appraised (and resale) value of energy-efficient houses and added that Net Zero is hoping to organize a lenders' forum in the coming months to move the topic of green mortgages forward.
"Appraisal value is an important first step in the move toward real green mortgages," he said. "Banks need to better understand the value of homes with features like solar energy because if they better educate themselves on the resale value of what that means in the marketplace, then I think that will give them more of a comfort zone on entering this market more aggressively because there's a security there for them."
Lenders also need to figure out ways to effectively market green products to make them more accessible (and attractive) to consumers, especially as green homes gain popularity. (Case in point: the Toronto Star recently reported there are plans to include home energy efficiency ratings in MLS listings).
Rowan Smith - who wrote an explanation of green mortgages on his website - pointed out most consumers care more about great rates and other terms than the benefits offered through green mortgages.
"That's one of the hardest things to sell to a client on - just doing the right thing might be costing them a quarter point in interest over the five years and that can be, say, $25,000," he said. "So where does the threshold of people doing the right thing end and begin? I think that's why we're not seeing a big focus on that and seeing more of a focus on rate."
Smith added that he hasn't had many inquiries about green mortgages and has only referred a few customers ("I can count them on one hand") to insurers for rebates - even customers who have moved into a home with green building standards. One reason he cites is that many clients get bogged down with the idea of an energy audit, which can involve things like a smoke test to evaluate how airtight a home is.
As the recent EnerQuality survey indicated, a significant portion of Canadians are looking for ways to make their homes greener. Further to that point, a Canadian Green Home Index survey released in April by Home Depot found 83 per cent of Canadians acknowledged they want to make green improvements on their home, with only two per cent claiming their home was already as green as it could be.
Legislation is even moving along: as the Toronto Star recently reported, anyone making an offer on a home will soon be able to demand or waive the requirement of a green energy audit from the seller under new rules proposed under Ontario's Green Energy and Green Economy Act.
So what's the solution to linking environmental concern with green mortgage products? Shields said lenders, along with real estate and mortgage professionals, should become more informed about the still-emerging area of green housing while looking for solutions to encourage environmentally friendly choices.
"Consumers are interested in energy-efficient homes, but rely on building codes to protect them from that," said Shields. "Are they exploring things that are much more advanced? Not yet, because they are not educated enough yet on the benefits and what's available in the marketplace."