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Energy efficiency loans for homeowners

Last updated 11/30/2022

Property owners have a few different financing options available to them for energy efficiency improvements. An energy-efficient mortgage is a mortgage-backed (or “secured”) loan, which means that you use your property as collateral. Energy efficiency loans are unsecured loans, more like the personal loans or lines of credit that you can take out from a creditor.

Energy efficiency loan overview
  • Does not require your home as collateral
  • Good option for consumers who are unable or unwilling to use an energy efficiency mortgage
  • If you default, the lender can hire a collection agency and your credit score will decrease
  • Interest paid is not tax-deductible
  • You can be approved in minutes

Energy efficiency loans explained

With an unsecured energy efficiency loan, you can borrow money from a lender to make energy efficiency upgrades to your property without having to use it as collateral. The penalty for defaulting on the loan is smaller – they do not require collateral, and the lender cannot foreclose on your home. However, they are also riskier for the lender than mortgage-backed loans, and this can result in higher interest rates.

An energy efficiency loan may be right for you if…
  • Your priority is to maximize your cash flow in the short term
  • You don’t have enough home equity to cover your project costs, or you want to save it for other purchases
  • You are not comfortable with using your home as collateral
  • You don’t have the tax liability to take advantage of tax-deductible interest

As with other energy efficiency financing options, you can find energy efficiency loans to fund a variety of projects. In most cases, these loans are better suited to large projects, such as replacing windows, insulation, or heating and cooling systems in your house, rather than small purchases like energy efficient appliances and lighting.

What makes energy efficiency loans different?

Each of your energy efficiency financing options, including energy efficiency loans, energy efficient mortgages, PACE financing, and on-bill financing, offer distinct benefits. 

Energy efficiency loans can be quick & easy for homeowners

Energy efficiency loans offer two distinct advantages over energy efficient mortgages: they don’t require that you put your property up as collateral, and applications can often be processed in the same day. If you don’t have equity in your home, or don’t want to use it, energy efficiency loans offer a good alternative. Additionally, depending on the financing provider, you may be able to receive an approval on the same day as you submit your loan application.

Convenience may come at an added cost

When compared to energy efficient mortgages, energy efficiency loans typically offer slightly lower long-term savings. While this isn’t the only reason to conduct energy efficiency measures for your home or business, it is worth considering.

There are two reasons why unsecured energy efficiency loans can cost slightly more in the long term than energy efficient mortgages. Unsecured energy efficiency loans don’t use your property as collateral and therefore don’t require that you hold significant equity in your home.

However, if your loan isn’t backed by your property, it creates additional risk for the lender. As a result, energy efficiency loans typically have higher interest rates than energy efficient mortgages. Additionally, unlike energy efficiency mortgages, the interest for unsecured energy efficiency loans is not tax-deductible.

Energy efficiency loans can have terms running from five to 20 years. If you are interested in seeing the savings from your energy efficiency investment on day one, a longer loan term with smaller monthly payments is a good way to achieve it. However, you may end up paying more interest over the course of the loan as a result.

Home energy loans can also help you finance a solar energy system

Whether your primary motivation for energy efficiency measures is to reduce your electric bills, minimize your impact on the environment, or both, you should also consider installing solar panels on your home. As with energy efficiency, there are plenty of solar financing options, many of which are $0-down – and in many cases, there are financial incentives and rebates that can reduce your installation costs further.

Organizations that offer energy efficiency loans

There are specialized home energy financing companies, like Renew Financial and EnerBank USA, that offer unsecured loan products specifically tailored to home energy improvements. In many cases, your energy efficiency contractor can connect you with loan options through these organizations or others.

Some states or municipalities also offer unsecured energy efficiency loans. One example is the Massachusetts HEAT Loan program, which is part of the Mass Save energy efficiency initiative. The HEAT Loan program is sponsored by Massachusetts utilities and the Massachusetts Department of Energy Resources. It offers 0% financing options for homes and businesses conducting a variety of home energy upgrades, including:

  • Heating system replacements
  • Domestic hot water and solar hot water heaters
  • Central air conditioning and heat pumps
  • Insulation & replacement windows
  • Central wood pellet heating systems
  • Deep energy retrofits
  • Removal of asbestos and vermiculite
  • Upgrading knob & tube wiring

Utilities and local governments across the country offer similar programs – contact your state energy office, or your utility, to find out if there are options available near you.

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