Green Home Loan Interest Rates

What is a green home loan?

A green home loan is like a regular home loan, except it features a discounted interest rate for properties that meet certain energy efficiency standards. There are several lenders in Australia that offer green home loans with these discounted rates, but eligibility criteria can vary.

The residential sector makes up more than a quarter of Australia’s emissions, so there’s plenty of reason to be mindful of your property’s output. 

Each lender has its own criteria borrowers have to meet in order to be eligible for a green home loan. It’s best to check directly with the lender to find out its eligibility criteria.

Generally speaking, to be eligible for a green home loan, your new or existing home should have certain features, which could include (but not limited to):

• Solar panels

• Insulation

• Double glazing

• Solar hot water systems

• Water tanks

• Energy storage system

Your home generally also has to meet or exceed a 7-star NatHERS rating to be eligible for a green home loan.

Jean-Francois Rupp

Alpine Nature Experience founder

"Just like everyone else, I’m looking for that added value, the confidence that I’m doing the right thing beyond just a ‘feel-good’ feeling. I want to know that the company I’m banking with has the same values and isn’t sugar coating products.”

Which lenders offer green home loans

A growing number of lenders in Australia are now offering green home loans. Below are some of the lenders in Australia that offer green home loans at the time of writing.

• Bank Australia: The customer-owned bank offers a Clean Energy Home Loan in partnership with the Clean Energy Finance Corporation (CEFC). The Clean Energy Home Loan is available on the Premium Package Home Loan for new and existing customers (including refinancers).

• loans.com.au: Homes less than 12 months old and have a NatHERS rating of 7 stars or more may qualify for better pricing. loans.com.au also offers a Solar Home Loan featuring an interest rate discount for homes that have solar panels.

• Gateway Bank: The mutual bank’s Green Home Loan offers a discounted variable rate on properties with a NatHERS rating of 7 stars or higher.

• NAB: If you’re buying or refinancing a property that has a NatHERS rating of seven stars or higher, NAB offers lower variable rates, as well as discounts on lenders mortgage insurance (LMI).

Why green home loans have lower interest rates than standard home loans?

In general, lenders will offer lower interest rates on green home loan products. This could be a minor discount, or some of the cheapest rates on the market. There’s a couple of reasons why lenders might do this.

First, many banks and lenders like to make pledges towards a sustainable future. Energy efficient homes contribute to reduced carbon emissions and conserve natural resources, so are one of the principle ways banks can demonstrate their commitment to environmental issues.

Secondly, some lenders might also consider owner-occupied energy efficient home loans to be lower risk. Electricity and gas costs can be substantial and are often susceptible to upward pressure from domestic inflation or geopolitical instability.

Homeowners will typically make significant savings on their energy bills with an energy efficient home, so lenders might prefer to give out these loans because there are less chance the household's expenses become overwhelming, leading to borrowers defaulting.

What is NatHERS?

Nationwide House Energy Rating Scheme (NatHERS) is a star rating system out of 10 which rates the design of a home based on its energy efficiency. The rating system is judged on things like the layout of the home, construction methods and materials used, plus how much heating (or cooling) the occupants may require to live comfortably throughout the year.

When applying for a green home loan, many lenders will require a NatHERS accredited assessor to give the property a rating of 7 stars or higher

How to calculate NatHERS

To calculate a NatHERS rating, the assessor will use software that models expected indoor temperatures based on data specific to that property, including the design and construction of the home, local climate, and common patterns of household use.

The assessor then enters the data into the software, which develops a simulation model of the house or apartment that includes:

• Size and function of rooms

• Size and specification of openings

• Building materials/windows/products

• Type of construction

• Dwelling orientation

• Location

The software then models how much heating or cooling will be necessary during the year by simulating how the local climate heats and cools the house during the day and night.

As soon as the temperature inside falls outside of a ‘comfortable’ range, the software models the need for heating and cooling based on the assumption the occupants will open or close windows and blinds/awnings before resorting to using heating or cooling.

The total estimated annual heating/cooling requirements are then converted to a star rating out of 10.

It’s important to note the NatHERS rating does not take into account things like household appliances, hot water systems or lights because these are usually replaced many times over the course of the building’s lifetime.

Green home loan pros

• Lower interest rates

Most green home loans offer lower interest rates than traditional home loans as an incentive for borrowers to build or buy homes that are more environmentally friendly.

• Higher LVR

Some green home loans also offer a higher loan-to-value-ratio (LVR) than traditional mortgages. Some lenders allow a 90% or even 95% LVR. This means you can go in with a deposit as low as 5% or 10%, but you may need to pay LMI.

• Reduce your environmental footprint

Besides interest rate discounts, the most obvious incentive of a green home loan is that you get to play a role in fighting climate change. An energy efficient property can reduce your carbon footprint and contribute to a more sustainable future for Australia.

• Lower your energy bills

Making your home more energy efficient usually lowers your power bills, so it’s a win-win.

Green home loan cons

• Strict eligibility criteria

Unlike traditional home loans, green home loans have far stricter eligibility criteria that your home will have to meet in order to be eligible. Generally, your property will need to have at least a 7-star NatHERS rating and/or have sustainable features.

• Limited lenders

More lenders are beginning to offer green home loans but as it currently stands, the market in Australia is fairly small, which means you’ll have fewer lenders to choose from.