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Green mortgages cut into your savings

To meet the demand for environmental action within the housing sector, some banks have implemented “green mortgages”. But are they worth it?

The environmental movement in Canada is starting to accelerate and both homebuyers and homeowners are climbing on board the green express. According to the EnerQuality Green Building survey in October 2009, 40% of Ontario homebuyers were willing to pay an additional $10,000 for a ‘green home’, compared to only 22% in 2008 [1]. And the numbers are only growing. To meet this rising demand for environmental action within the housing sector, some Canadian banks have implemented “green mortgage” initiatives.

As long as your home has features that limit energy consumption or make the process more efficient, it may be able to qualify as “green”. This initiative is not on par with LEED certified buildings, but it’s definitely a start.

The TD Canada Trust Green Mortgage

With TD Canada Trust’s Green Mortgage, you are provided with a discounted rate of 1% lower than the posted 5-year fixed mortgage rate. In addition, when you buy CSA®approved solar panels or make ENERGY STAR® certified purchases, TD offers a cash rebate of up to 1% on the cost of a mortgage, or on the fixed portion of your Home Equity Line of Credit (HELOC). They also make a $100 donation to TD Friends of the Environment Foundation. [2]

So, does this translate into savings?  First, TD mortgage rates may not be the most competitive on the market. Even with a 1% discount, this rate may still be significantly higher than one you could procure through a mortgage broker. Second, the cash rebate pertains to very specific purchases, so unless you really want to invest in these exact environmental upgrades, it may not make financial sense to do it simply for the green mortgage.

Cash rebate on the average mortgage in Canada [3]: $1500 (1% of a $150,000 mortgage)

BMO Eco Smart Mortgage

Recently, in March of 2011, the Bank of Montreal (BMO) also started offering green mortgages. The BMO Eco Smart Mortgage is a competitive mortgage rate, it is 3.89% on a 5-year fixed mortgage rate, for an energy-efficient home. Your home will need to be appraised by BMO to see if it qualifies. Possible qualifications include solar, tankless or Energy Star qualified hot water systems; high-quality attic insulation; Energy Star windows and doors or high- efficiency heating and cooling systems. [4]

The name of the green game is “energy-efficiency” and anything that can be done to improve the energy consumption of your home could qualify you for a green mortgage.

So, what are the real savings to be gained from this product? A rate of 3.89% is good, but today, you can get 5-year fixed mortgage rates as low as 3.44%. Using our mortgage payment calculator on both these rates, the savings in just interest costs over a 5-year term would amount to approximately $3,209.

RBC Royal Bank Energy Saver Mortgage

With the RBC Energy Saver Mortgage, you can save up to $300 in rebates on a home-energy-related improvement [5]. But, does $300 match up to the savings you could have accumulated with a lower mortgage rate? Probably not.

Canadian Mortgage and Housing Corporation (CMHC)

CMHC provides buyers with a discount of 10.0% from the mortgage insurance premium for qualified purchases [5]. This may be worth looking into if you are considering a down payment of less than 20%.

Cost vs Benefit

If you are thinking about getting your home renovated to meet the requirements of a green mortgage, ensure that you confirm with your lender that the upgrades will indeed qualify your home.

The best part about an energy-efficient home is that it will significantly reduce your utility bills. In a Leger Marketing survey done for BMO, 51 % of those surveyed mentioned utility bills as the main financial shocker of homeownership [4].  By investing in an energy saving refrigerator or washing machine, for example, you can significantly reduce your household costs.

Homebuyers looking for the best mortgage rates in Canada may not be enticed by a green mortgage as it offers few benefits for purchasing a green home.  However, if you are interested in ‘greening’ your home, then check out your options, but keep in mind that you may be able to save more with a regular mortgage. Do some research and find out if a green mortgage will actually benefit you.

Go green without a green mortgage

Even though we’re all for the green movement, we’re not totally convinced by the green mortgages out there at the moment. We respect the effort to promote environmental homes but in most cases, the mortgage savings are nonexistent.

You can still invest in energy-efficient upgrades which will benefit the environment and cut down on your utility bills (the monthly savings will accumulate). You can also save on your mortgage payments by choosing a low home mortgage rate. Don’t be fooled by just the concept of an environmental mortgage.

All that glitters isn’t green.




[3] According to the CAAMP 2011 survey

[4] Link no longer available