Higher mortgages, lower energy bills: The real economics of buying an energy-efficient home

Conference · Sun Feb 01 04:00:00 EST 1987

OSTI ID:6895119

Mills, E

To measure the actual costs and benefits of buying an energy- efficient home, it is necessary to employ a cash-flow model that accounts for mortgage interest and other charges associated with the incremental costs of conservation measures. The ability to make payments gradually over the term of a mortgage, energy savings, and tax benefits contribute to increased cost effectiveness. Conversely, financial benefits are reduced by interest payments, insurance, taxes, and various fees linked to the (higher) sale price of an energy-efficient home. Accounting for these factors can yield a strikingly different picture from those given by commonly used ''engineering'' indicators, such as simple payback time, internal rate of return, or net present value (NPV), which are based solely on incremental costs and energy savings. This analysis uses actual energy savings data and incremental construction costs to evaluate the mortgage cash flow for 79 of the 144 energy-efficient homes constructed in Minnesota under the Energy-Efficient Housing Demonstration Program (EEHDP) initiated in 1980 by the Minnesota Housing Finance Agency. Using typical lending terms and fees, we find that the mean mortgage-NPV derived from the homeowners' real cash flow (including construction and financing costs) is 20% lower than the standard engineering-NPV of the conservation investment: $7981 versus $9810. For eight homes, the mortgage-NPV becomes negative once we account for the various mortgage-related effects. Sensitivities to interest rates, down payment, loan term, and marginal tax rate are included to illustrate the often large impact of alternative assumptions about these parameters. The most dramatic effect occurs when the loan term is reduced from 30 to 15 years and the mortgage NPV falls to -$925. We also evaluate the favorable Federal Home Administration (FHA) terms actually applied to the EEHDP homes. 8 refs., 4 figs., 3 tabs.

• Research Organization: Lawrence Berkeley Lab., CA (USA)
• DOE Contract Number: AC03-76SF00098
• OSTI ID: 6895119
• Report Number(s): LBL-23097; CONF-8704333-1; ON: DE89002960
• Country of Publication: United States
• Language: English

Related Subjects

32 ENERGY CONSERVATION, CONSUMPTION, AND UTILIZATION
320100* -- Energy Conservation
Consumption
& Utilization-- Buildings
BUILDINGS
COMPILED DATA
CONSTRUCTION
COST BENEFIT ANALYSIS
DATA
ECONOMICS
EFFICIENCY
ENERGY CONSERVATION
ENERGY EFFICIENCY
HOUSES
INFORMATION
NUMERICAL DATA
RESIDENTIAL BUILDINGS
TAX CREDITS