David Larock in Mortgages and Finance, Home Buying
Businesses are always looking to cash in on consumer trends, and in today’s world the trend towards greener, more sustainable living is the mother of them all. Until now, Canadian mortgage lenders have made half-hearted attempts to capitalize on the green movement by rebranding their existing products with green-sounding names and offering to donate to green causes if you agree to pay a higher interest rate. Not surprisingly, these attempts at green washing have been met with consumer indifference, because despite what the mortgage marketing departments at our major banks must think, we can actually add and subtract.
In today’s post I’ll show you what a typical “green” mortgage from a major bank looks like and then I’ll introduce you to what is, in my opinion, Canada’s first and only legitimately green mortgage (because it rewards you with a better rate for being green).
First, let’s look at a standard offer from a Big Five bank. It usually includes a free handbook on how to green-up your home and comes with a rebate of $100 to $150 for a home energy audit, provided it is done shortly after you move in. The rate offered is always worse than market and I guess the hope is that you’ll be so gung ho for the green part of the mortgage you won’t pay attention to how much it’s actually costing you.
Here is a current example of a Big Five bank’s green offer:
- Bank offers you 1% off of their posted rate (that’s a five-year fixed rate at 4.39% as of Aug 24, 2011)
- In return you qualify to receive up to 1% of your mortgage back, in the form of rebates, if you buy approved energy efficient items for your home.
- Bank donates $100 to a good cause.
Now let’s assume that you took this offer and borrowed $300,000, amortized over 25 years. At 4.39% (or anything close to that) you’d be massively overpaying since you could call any independent mortgage broker on the internet and get 3.59% today. Over the next five years, using these comparative rates, your green mortgage would cost you about $8,000 in extra interest, and in return you would get a potential rebate of $3,000 (plus a handbook, I’m sure).
In case you were wondering, the fine print for this offer says that if you receive a discount of greater than 1% off of the posted rate you are not eligible for any rebates, so this isn’t the usual case of a bank advertising a high rate and then making you haggle for a discount.
If this bank really cares about the environment then why do they waste all that paper and ink promoting such a terrible offer? Frankly, it’s an insult to greenies everywhere – just because we care about the environment doesn’t mean we can’t use a calculator.
That brings us to a new green mortgage offer which is only available through a very select group of independent mortgage planners. I now have a lender that will discount its already competitive five-year rate of 3.44% down another 10 basis points to 3.34% (with reasonable terms and conditions) provided that you meet the following criteria:
If you are purchasing a home, it must have one of the following: a mid- or high-efficiency furnace, an alternative energy source (i.e. solar panels), a new water heater, or Energy Star™ rated appliances with a combined value of at least $1,000. Alternatively, if your home has been rated with an energy efficiency level of 80 or higher, you will also be eligible (this rating is based on the EnerGuide rating system used by Natural Resources Canada).
If you are refinancing your existing mortgage, you must do one of the following: spend at least $1,000 of the refinance proceeds on new windows and/or doors, a mid- or high-efficiency furnace, a new water heater, alternative energy sources (i.e. solar panels), Energy Star™ rated appliances, or anything else that could reasonably be assumed to improve your home’s energy efficiency (i.e. reinsulating the attic). You are also eligible if you use at least $1,000 of the refinance proceeds to purchase or refinance a loan on a hybrid or electric vehicle.
As a kicker, the lender will donate $100 to Evergreen Canada for every mortgage transaction that is completed under this program.
Now I call that a real green mortgage because it actually saves you money for either buying a house that is environmentally efficient, or refinancing your current mortgage and using part of the proceeds to green up your home or car. (No word yet on whether this offer comes with a handbook.)
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David Larock is an independent mortgage planner and industry insider specializing in helping clients purchase, refinance or renew their mortgages. David's posts appear weekly on this blog (movesmartly.com) and on his own blog integratedmortgageplanners.com/blog). Email Dave