Energy savings improve mortgage options


When home buyers are taking on large mortgages with long amortization periods, a little bit of monthly savings can go a long way, especially when British Columbians continue to carry the largest mortgages in Canada.

So, although buyers may focus on style when they're choosing their home, a focus on energy efficiency could make the difference in how much home they can afford.

"An energy-efficient home can cost significantly less to operate each month than one that just meets code," says Doug Overholt, representative for BC Hydro's Power Smart New Home program. "That's a marketing advantage that smart builders can leverage."

Monthly heating savings = more buying power

Annie Ramos, Royal Bank mortgage specialist.

"To figure out a prospective buyer's price range for a new home, we add together a few factors," says Annie Ramos, a mortgage specialist for Royal Bank. "We include principal, interest, property tax, strata fees if applicable, and heating.

Financial institutions typically estimate a certain amount per month for heating costs depending on the type of home, typically in the range of $200 per month for an average single family home.

"The bottom line is that there is a real benefit for our customers to buy a home with lower heating costs, due to the fact that they can qualify for a larger mortgage and thus gain buying power," says Ramos.

Online calculators such as this, which help buyers determine how much home they can afford, easily demonstrate the benefits of reducing heating costs.

Ramos says another way to present the value of energy savings to a home buyer is by considering how much an additional payment each month can reduce the time it will take to pay off their mortgage. If the heating costs are, say $100 less per month, the savings can go against the principal of the mortgage.

For example, consider a $400,000 mortgage at 3% with a 30-year amortization. Ramos says paying an additional $100 each month for the first five years alone cuts about two and a half years off the time it would take a home-buyer to become mortgage-free — a significant value.

Packaging the energy efficiency savings story

The challenge is that prospective buyers and lenders rarely alter the default estimates for heating costs when pricing a mortgage, says Overholt.

"Heating cost is being factored in, but it's rarely discussed," he says. "But if a buyer has an EnerGuide report demonstrating that a home is going to cost 30% or 50% less to heat than the average home of that size, they can ask for that reduced cost to be considered in the mortgage approval process.

"Providing buyers with clear information about heating costs offers them a real benefit — especially when it's an energy-efficient home and their costs will be lower than average," says Overholt. "This is a way for energy-efficient builders to differentiate their product, and open their market a little wider."

Ramos agrees. "There are a lot of benefits for a client when you go to see a mortgage specialist and say, 'Hey, I have an extra $100 a month. What should I do?'"