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What are green home loans?

Green home loans are becoming a popular financing type for many Australians who recognise the need for action as the world grapples with the pressing issue of climate change. But what exactly are green home loans and how do they work?

Green home loans, also known as eco-friendly home loans or sustainable home loans, are financial products designed to incentivise environmentally responsible housing practices. These loans offer various benefits to homeowners who wish to make their homes more energy-efficient and reduce their carbon footprint.

The main objective of these loans is to encourage the construction or renovation of energy-efficient, environmentally friendly homes.

What are the key features of green home loans?

Green home loans usually come with features that can help borrowers carry out environmental-friendly improvements in their homes. Here are some of the most common features of a green home loan:

1. Interest Rate Discounts: One of the most attractive features of Green Home Loans is the potential for reduced interest rates. Banks offer lower interest rates to borrowers who invest in energy-efficient home improvements, such as solar panels, insulation, energy-efficient heating and cooling systems, and double-glazed windows.

2. Flexible Repayment Terms: Many Green Home Loans come with flexible repayment terms, allowing homeowners to repay the loan at a pace that suits their budget. This flexibility can ease the financial burden of making eco-friendly upgrades. Also read: Repayment flexibility versus rate

3. Additional Borrowing Capacity: Some lenders may grant borrowers the ability to borrow additional funds to cover the cost of sustainability improvements, without affecting their borrowing capacity for other purposes.

4. Eligible Properties: Green Home Loans typically apply to both new and existing properties, allowing homeowners to retrofit their homes for improved sustainability.

5. Environmental Certification: To qualify for these loans, borrowers may need to provide documentation proving that the property meets certain environmental standards, such as energy efficiency ratings or sustainable building certifications.

What are the qualifications needed for green home loans?

To qualify for green home loans, borrowers must possess or purchase homes that meet certain qualifications. Specific requirements will differ from lender to lender but here are some of the common certifications required for such loan products:

• Nationwide House Energy Rating Scheme (NatHERS)

• Leadership in Energy and Environmental Design (LEED)

• Green Star

• Residential Efficiency Scorecard

• Design & As Built

Which lenders offer green home loans?

Several financial institutions are offering their own versions of green home loans. Here are some examples:

CommBank – Green Home Offer

CommBank’s Green Home Offer provides borrowers with a low standard variable rate loan when they build, buy, or renovate their home to be more sustainable, climate resilient, and energy efficient.

For this loan offer, CommBank partners with the Green Building Council of Australia (GBCA) — borrowers whose homes meet the GBCA Green Home Standard certified build are eligible to apply for the Green Home Offer. There is also an option for borrowers whose homes have a different qualification.

NAB

NAB offers eligible home loan customers discounts, particularly those with less than 20% deposit. They can get discounts of up to 1.00% p.a. on their home loan and a 5% rate reduction on the cost of Lenders Mortgage Insurance.

Westpac

Westpac’s Green Home Loan will offer discounted interest rates for eligible customers to support Australians building new energy-efficient homes.

Firstmac

Borrowers can get up to 0.60% p.a. discount for their construction home loan and a 0.95% p.a. discount for their green home loan for the first five years of the loan, provided that the homes meet a NatHERS rating of 7 stars or higher.

loans.com.au

loans.com.au also offers a discounted Green Home Loan for homes less than 12 months old that have a NatHERS rating of seven stars or more. The discount is also available for the first five years of the loan. It also offers a Solar Home Loan featuring an interest rate discount for homes that have solar panels.

Gateway Bank

Gateway Bank offers customers discounts for properties with a Residential Efficiency Scorecard rating between a minimum of 4 Star to a maximum of 6.9 Star rating or at least 3 environmental and energy efficient elements.

Regional Australia Bank

Regional Australia Bank provides incentives to members with efforts to invest in environmentally friendly and sustainable features for their new home, or for adding them to their existing home. Aside from a rate discount, eligible borrowers are provided with features such as offset accounts and redraw facilities.

Bank Australia

Eligible customers can receive a discount of up to 0.30% p.a. off the Clean Energy reference rate for five years for variable rates, or the length of their fixed rate period.

RACQ Bank

RACQ Bank customers can borrow up to $50,000 on top of their existing loan for green home improvements.

What home improvements can help a property be qualified under green home loans?

Here are some home features and improvements that can help borrowers get a green home loan:

• Solar Panels - They harness the power of the sun to generate clean and renewable energy, reducing the reliance on traditional electricity sources and lowering energy bills.

• Insulation ­­- Proper insulation is crucial for maintaining a comfortable temperature in the home. It prevents heat loss in the winter and heat gain in the summer, reducing the need for excessive heating or cooling.

• Energy-Efficient Appliances - Upgrading to energy-efficient appliances such as ENERGY STAR-rated refrigerators, washing machines, and dishwashers can significantly reduce a home's energy consumption, leading to lower utility bills and a reduced carbon footprint.

• LED Lighting - Replacing incandescent or fluorescent bulbs with LED lights is a simple yet effective green home improvement. LED bulbs use significantly less energy and have a longer lifespan, reducing both energy costs and the need for frequent replacements.

• Double-Glazed Windows - Double-glazed or energy-efficient windows provide better insulation, reducing heat transfer and improving the overall energy efficiency of the home. They also enhance soundproofing and security.

• High-Efficiency Heating and Cooling Systems - Installing energy-efficient heating, ventilation, and air conditioning (HVAC) systems can lead to substantial energy savings. Heat pumps, for instance, can provide both heating and cooling with minimal energy consumption.

• Water-Saving Fixtures - Upgrading to water-saving fixtures such as low-flow toilets and showerheads can help conserve water, which is especially important in regions prone to drought. Rainwater harvesting systems are another eco-friendly option for water conservation.

• Green Roof or Green Walls - Installing a green roof or green walls can improve insulation, reduce stormwater runoff, and provide natural insulation, reducing the need for heating and cooling. Additionally, they enhance air quality and provide aesthetic benefits.

• Smart Home Technology - Implementing smart home technology, such as programmable thermostats, energy monitoring systems, and automated lighting controls, can help optimize energy usage and reduce waste.

• Rainwater Harvesting Systems - Collecting rainwater for non-potable uses like irrigation and toilet flushing can reduce water bills and conserve precious resources.

• Sustainable Flooring - Opting for eco-friendly flooring materials like bamboo, cork, or reclaimed wood not only reduces environmental impact but also adds a unique touch to your home’s interior.