Not that the recent economic downturn/crisis/recession/depression/whathaveyou has us in the best mood to be financing large purchases—like solar PV systems. But seeing as federal taxes are due next week (yay), I thought I’d make a quick note on why energy efficient mortgages—or EEMs, for short—make a lot of sense when it comes to bankrolling your solar purchase. The reason (discussed below) has to do with the deductibility of interest payments on home loans.

EEMs provide a helpful financing option by enabling you to bundle the solar purchase into your mortgage. In practice, EEMs use the energy savings from solar—along with savings from any energy efficiency improvements—to increase homeowners’ buying power. As outlined by the Energy Star website, “[a]n EEM is a mortgage that credits a home’s energy
efficiency in the mortgage itself. EEMs give borrowers the opportunity to finance cost‐effective,
energy‐saving measures as part of a single mortgage … thereby allowing borrowers to qualify for a
larger loan amount and a better, more energy‐efficient home.” EEMs may be incorporated when
buying, selling, refinancing or remodeling your home.

Unlike with some other kinds of loans, interest payments on mortgages are tax deductible. Solar financing expert Andy Black explains why this is an important distinction: “[i]n the case of ‘deductible’ loans, such as home‐equity based loans, the interest is usually tax‐deductible and thus the loan effectively costs less. Home equity loans are also excellent sources of funds because interest rates on real‐estate secured loans are relatively low and payment terms can be long.” Furthermore, “[i]nflation plays an important part. Inflation affects electric rates and thus effectively increases the savings from a soalr system over time. Inflation doesn’t affect loan rates, particularly with fixed-rate loans. Hence, as electric rates rise, the savings grow, but the cost of the loan stays releatively constant.” (Andy Black, “What’s the Payback?” Solar Today, May/June 2006, p36).

The U.S. federal government insures these loans through the Federal Housing Authority (FHA) or
Veterans Affairs (VA) program. For more information on EEMs and HERS ratings, visit the
Residential Energy Services Network. Or, check out our GetSolar overview.