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

Abstract

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 themore » 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.« less

Authors:
Publication Date:
Research Org.:
Lawrence Berkeley Lab., CA (USA)
OSTI Identifier:
6895119
Report Number(s):
LBL-23097; CONF-8704333-1
ON: DE89002960
DOE Contract Number:  
AC03-76SF00098
Resource Type:
Conference
Resource Relation:
Conference: 5. annual international energy efficient building conference and exposition, Minneapolis, MN, USA, 9 Apr 1987; Other Information: Portions of this document are illegible in microfiche products
Country of Publication:
United States
Language:
English
Subject:
32 ENERGY CONSERVATION, CONSUMPTION, AND UTILIZATION; ENERGY EFFICIENCY; COST BENEFIT ANALYSIS; HOUSES; COMPILED DATA; CONSTRUCTION; ECONOMICS; ENERGY CONSERVATION; TAX CREDITS; BUILDINGS; DATA; EFFICIENCY; INFORMATION; NUMERICAL DATA; RESIDENTIAL BUILDINGS; 320100* - Energy Conservation, Consumption, & Utilization- Buildings

Citation Formats

Mills, E. Higher mortgages, lower energy bills: The real economics of buying an energy-efficient home. United States: N. p., 1987. Web.
Mills, E. Higher mortgages, lower energy bills: The real economics of buying an energy-efficient home. United States.
Mills, E. 1987. "Higher mortgages, lower energy bills: The real economics of buying an energy-efficient home". United States.
@article{osti_6895119,
title = {Higher mortgages, lower energy bills: The real economics of buying an energy-efficient home},
author = {Mills, E},
abstractNote = {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.},
doi = {},
url = {https://www.osti.gov/biblio/6895119}, journal = {},
number = ,
volume = ,
place = {United States},
year = {Sun Feb 01 00:00:00 EST 1987},
month = {Sun Feb 01 00:00:00 EST 1987}
}

Conference:
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