Back in October when I was at the GreenBuild conference in Toronto I sat in on an interesting presentation headed up by Philip Henderson of the Natural Resources Defense Council regarding lending and energy efficiency. How do those two concepts relate you ask? Here’s the premise: because energy costs can be a significant expenditure over the lifetime of a mortgage, the energy efficiency of a home can have a significant impact on a borrower’s finances and should be factored in by the lender.

According to Henderson, a homeowner’s expenses are roughly broken down as follows: mortgage (35%), taxes (25%) and everything else (40%), with energy costs making up a large part of that. For example, the total energy costs for a $175,000 home over the life of the mortgage are around $70,000. Given the significant amount of money an owner spends on utilities, a strong case can be made to include these costs in assessing the “credit worthiness” of a borrower. It would be done by looking at the energy efficiency of the home: the higher the efficiency, the less money is spent on heating and cooling.

If lenders factored this in by relying on a standard energy efficiency rating (such as ENERGY STAR), the lending market would gradually cause borrowers to shift to more and more energy efficient homes and, voila, you’ve incentivized energy efficiency through market forces. A very intriguing idea that is getting more and more traction.

More information can be found at ENERGY STAR’s Energy Efficient Mortgages.