Unveiling Lesser-Known Low-Interest Loans for Energy Efficiency Improvements

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Australians are used to “pumping gas” to heat their homes during winter, but homeowners willing to make their properties more energy-efficient are saving almost $1,000 a month on their mortgages.

This year, Melbourne resident Amanda Fung shaved 0.75 percentage points off her interest rate after installing a split-system air conditioner and switching from gas to an induction stove. She also replaced her hot water system a few months prior.

While the works cost thousands of dollars, some banks are now offering low-interest rate loans to Australians to help pay for such upgrades. In Fung’s case, making her home more energy-efficient also made her eligible for a cheaper interest rate on her home loan.

Mortgage broker Marisa Hoffenberg, founder of Sustainable Home Loans, says many Australians are not aware of the cost savings that efficiency upgrades can deliver, or the availability of green loans to help cover the upfront costs. Many banks are also offering cheaper home loans to those with more energy-efficient properties.

“It is such a huge advantage,” Hoffenberg says, adding that it’s “devastating” that more people don’t know about the offers.

She says clients can save around $100,000 in interest payments over the life of their loan, but she has also worked with homeowners who are on track to save $80,000 within five years.

“It’s almost an absolute no-brainer.”

Hoffenberg says the lack of advertising about green loans is partly to blame for the lack of awareness among consumers, but the assessments required to prove a home’s energy efficiency can also be difficult to obtain.

However, there are hopes that this will change with the federal government looking to expand the Nationwide House Energy Rating Scheme (NatHERS), which is currently used to assess the energy efficiency of new homes, to also apply to existing homes.

A spokesperson from the Department of Climate Change, Energy, the Environment and Water says: “The government will stage the release of NatHERS to existing homes from mid-2025.”

Jake Harvey, founder of 28Watt, which helps people to find the cheapest way to finance home energy upgrades, says once a standardised tool is available to assess the energy efficiency of an existing home, it will become a “catalyst” for more banks to offer discounted mortgages.

Table showing potential yearly savings on energy bills after efficiency measures.

Energy efficiency measures can save homeowners money on their electricity bills, as well as on their mortgages. Source: SBS News

Harvey points to the Netherlands, where every home is assessed and rated on its energy efficiency, and major banks tie their home loan rates to this rating. He believes all Australian homes will eventually be required to disclose energy efficiency performance.

The government estimates around 70 per cent of Australia’s 11 million existing homes have an energy rating of three stars or lower. If this could be boosted to five stars, the energy needed for heating and cooling could drop by 40 per cent.

State governments are also introducing measures to encourage greater energy efficiency even in rental properties. This week, the Victorian government announced that minimum efficiency standards for rental homes will be phased in from 2027, including requirements for insulation, draught-proofing, cooling in living areas, and four-star showerheads.

Boosting a home’s energy efficiency to five stars could also reduce the need for heating and cooling by 40 per cent. Source: SBS News

What are green loans?

There are several different types of green loans available, and the offerings vary widely between banks.

Many, including the Commonwealth Bank of Australia (CBA), offer low-interest-rate loans (for loan terms of between five and 10 years) to help fund specific measures, such as solar, batteries, and the installation of EV chargers. Other banks also offer loans for upgrades such as insulation, double glazing and split-system air conditioning.

Harvey says the lowest interest rate available is 2.79 per cent from RACQ, which generally requires the homeowner to have a mortgage with the bank, although not every bank will insist on this.

Navigating the different offers between banks is one reason Harvey says installers of solar and other upgrades don’t promote these loans and prefer to nudge clients towards zero-interest loan products, which are easy to explain and use.

But he says installers often add a fee for these products to their quotes, so people end up paying more upfront.

“[By opting for a low interest rate loan instead, homeowners are] accessing the installer’s best cash price, not their inflated 0 per cent interest quote price,” he says.

Harvey says 28Watt was developed to help customers find the best loan to finance their energy efficiency measures.

Customers can upload a quote from an installer and 28Watt will provide them options for a loan with the best interest rate.

While Harvey says some lenders pay the company a small commission if they are recommended, they will always list the cheapest option first.

Draughtproofing a home can reduce energy use for heating and cooling. Source: Getty / Westend61

Homeowners who improve the energy efficiency of their homes may also be eligible for discounted interest rates on their mortgage.

Earlier this year, Bank Australia offered a 0.75 percentage point discount on its variable interest rate to customers who improved the energy efficiency of their homes.

It was so popular, Bank Australia has now temporarily paused the product.

”We had such strong demand for our Clean Energy Home Loan Renovate product that we recently had to pause new applications,” a Bank Australia spokesperson says.

“We were able to offer the Clean Energy Home Loan at reduced rates, partly thanks to the support of the Federal Government-backed Clean Energy Finance Corporation, who contribute to the reduced rate, with the remaining portion of the reduction at the time funded by Bank Australia.”

Saving $1,000 a month on repayments

Fung is one of the homeowners lucky enough to take advantage of Bank Australia’s reduced interest rate for energy-efficient homes.

Fung secured the loan in April after spending around $12,000 on switching from gas heating and cooking to electric options.

A man looks out of a window while carrying a baby.

Amanda Fung says her energy bills have not gone up despite being at home all day on maternity leave and using the heater constantly to warm her baby’s room. Her husband also works from home more frequently. Source: Supplied

The upgrades have not reduced the cost of Fung’s electricity bills, but she says this is because she is using more power now that she’s on maternity leave.

“I’m home a lot more, my husband works from home a lot more and it means we need to heat the house for longer periods of the day,” she says.

“[Heating in the] baby’s room runs all day, all night, whereas before we wouldn’t have run the heating for that long.”

‘Everything feels dry and warm’

Darcy Dunn says his electricity usage from the grid has dropped by 46 per cent in the five years since he started upgrading his two-bedroom house in the regional Victorian city of Geelong.

This is despite switching his heating from gas to electric.

The 32-year-old says he and his family did not use their previous gas heating much because they understood how energy inefficient it was to run, so they chose instead to wear four or five layers of clothing at times.

The house was really cold to the point of potentially being unhealthily cold in winter.

Since doing the works, they no longer worry about how much they are using their heating. They have also managed to reduce their electricity usage because their home is more energy-efficient, although the cost of their electricity bills is roughly the same.

Dunn estimates he has spent almost $77,000 on works to his home over five years, including installing a 6.6kW solar system, double-glazing windows and doors, a heat pump for hot water, ceiling fans, an induction cooktop, a split system air conditioning unit, and insulation in the walls, ceiling, and floors.

He says the biggest drops in their electricity usage came after installing solar in February as well as replacing their old hot water unit with a new heat pump unit, which reduced their usage by around 40 per cent.

Table showing the cost of certain energy efficiency measures

Darcy Dunn spent almost $77,000 on energy efficiency measures over the past five years. Source: SBS News

The NatHERS rating of his home went from one star to 7.9 stars. Dunn says double glazing and wall insulation were crucial to achieving this result.

The works allowed him to get a reduced interest loan through Bank Australia, and he says the works have also made his house feel less damp.

“Everything feels dry and warm,” he says.

“In the old house, because it got so cold and was also so leaky, everything [felt] a bit damp and moist.

“Coming home after a day where there’s been no heating on in the house, you walk in and it’s still quite comfortable.”

What are the challenges?

While a lack of knowledge about green loans is one reason they are not more widespread, Hoffenberg says they have also been difficult to access due to difficulties in proving eligibility.

She says some banks like the CBA previously only gave discounted mortgage rates to people who could achieve a green star rating by the Green Building Council of Australia, but this rating process is incredibly expensive, making it unaffordable for many homeowners.

We’ve had a number of products being put out into the market that have not worked for various reasons, but once they get the design of the product right, it’s a phenomenal success.

A spokesperson for the CBA says it has now withdrawn its Green Home Offer due to “low take-up”.

The CBA will instead focus on its Home Energy Upgrades service, which offers customers personal loans with a low interest rate of 3.99 per cent to install solar, battery or EV chargers, as well as $1,500 cash back.

In contrast, applications for Bank Australia’s discounted mortgage have been paused due to high demand, although a spokesperson says they plan to re-open applications later in 2025.

Hoffenberg says green loans require banks to spend more time on administration, and the products can also be difficult for mortgage brokers to navigate because it’s necessary to understand both the energy efficiency requirements and the loan requirements.

But Hoffenberg believes these loans will continue to be offered, although institutions like Bank Australia may change the format.

“There’s still options available, it changes all the time.

“So if someone had to come to me now … I can find them an option.”