It’s a given that owning an energy-efficient home can put a damper on (or totally eliminate) the grunts, groans and general sensation of falling into a bottomless pit of HVAC-related despair that comes hand-in-hand with the arrival of monthly utility bills, particularly during seasons when furnaces and air conditioners are working overtime.
And according to the results of a study released earlier today by the University of North Carolina at Chapel Hill Center for Community Capital and the Institute for Market Transformation (IMT), there’s another significant boon to owning an energy-efficient home aside from the obvious: a significantly decreased risk of defaulting on a mortgage.
The reason for this, widely theorized but now empirical proven, is obvious: with less precious funds going directly towards heating and cooling costs (household energy usage accounts for a whopping 20 percent of the nation’s overall energy use), the owners of energy-efficient homes are allowed to concentrate more on the health of their mortgage, making loan payments in full and on time.
Overall, researchers found that loans taken out on energy-efficient homes, specifically homes built to Energy Star standards, are on average 32 percent less likely to go into default than non-energy-efficient homes. In fact, looking at the Home Energy Rating System (HERS) index of efficiency alone, for each point awarded the risk of default decreases.
Additionally, homeowners taking out mortgages on Energy Star homes were about a quarter less likely to prepay, an act considered as a risk by lenders and investors.
The study, Home Energy Efficiency and Mortgage Risks, was based on samples of 71,000 home loans from 38 states and Washington, D.C. The sample was limited to loans taken out for single-family, owner-occupied homes between 2002 and 2012. These loans were used for purchase only. About 35 percent of the homes used in the sample were Energy Star-rated while the remaining 65 percent of the homes formed the control group. The average price of the homes included in the sample was $220,000. Both older and newly built homes were included.
The implications that these results could have on the mortgage underwriting industry are huge, and the study authors plan to take their findings to Congress. Explains Roberto G. Quercia, director at the UNC Center for Community Consumer and one of the study’s authors:
Consumer and industry acceptance of energy efficiency is high. But the lack of broad consideration of potential energy savings in the mortgage underwriting process still prevents many moderate- and middle-income homebuyers from fully enjoying the cost savings. Since our study findings now show that energy efficiency is strongly and consistently associated with lower mortgage lending risk, lenders and policymakers have one more reason to promote it.
Related on MNN: Urban or rural: Which is more energy efficient? [Infographic]