‘Green banking’ can cut thousands off your mortgage payments

A new banking trend could help you save more than $6000 on your yearly mortgage repayments - and cut down your bills too. Here’s what you need to know.

With the interest rate rising, repaying your mortgage or financing to build your dream home can be incredibly expensive, but the numbers show “green banking” home loans can save you more than $6,000 in repayments every year.

It’s part of a new banking trend which aims to reward homeowners who switch to solar panels or completely electrify their homes by offering a discounted home loan repayment rate.

Graham Cooke, head of consumer relations at Finder, ran the numbers and found people who opted to go with a green home loan could save thousands of dollars over a five-year period.

Comparing your home loan quotes could save you thousands when you opt for a green banking home loan.

So what is ‘Green Banking’?

Mr Cooke said the new banking trend is all about rewarding customers for greener choices.

“Green banking is a movement which is really being pushed by the public – Australians are wanting to make more choices that are more beneficial to the environment and invest less in things like fossil fuel companies and banks are kind of adjusting their offer to cater for those Australians,” he said.

“Green products offered by banks encourage consumers to build homes with ‘green functions’ in line and there’s two ways you can do it: you can either have solar panels on your roof, or you can have your house ‘electrified’ by meeting the nationwide housing energy scheme standards.

“Basically, if your house is green enough then you can get these home loans which offer a lower rate and are more environmentally friendly.”

But the only issue with green home loans is that they’re more functional for people looking to build a home from scratch, rather than converting existing homes into environmentally friendly lodges.

“Not everybody can install solar panels, it depends on how much space you have, the construction of your roof, whether you have a lot of tree cover and if the house holder has a budget to install them,” he added.

The trend isn’t limited to home loans. Customers can also check in with their banks to see whether they offer green loans for electric vehicles or other loans.

Customers who invest in green home loans could save between $5,848 and $43,286 over a five-year period.

So where can you get one and is it worth it?

In 2020, Bank of Australia was the first bank to offer a range of green home loans to its customers with discounts of up to 0.3 percentage points.

Shortly after, the Commonwealth Bank of Australia launched a “CommBank Green Loan” providing a 2.49 per cent per annum standard variable rate – a 2.81 percentage point discount on its 5.3 per cent reference rate.

According to the data analysed by Finder, customers who took out an average sized loan of around $611,158 could save between $5,848 and $43,286 over a five-year period by using a green banking home loan scheme.

But while the savings may look big, Mr Cooke said inflated advertised rates meant that customers should get direct quotes to find out how much they’ll actually save.

“It looks a little bit exaggerated with the CBA loan because their advertised standard variable rate is probably a little bit artificially high compared to what people would really actually pay,” he said.

And after CBA raised their fixed mortgage rates by 1.4 per cent days before the RBA’s July board meeting, customers seeking home loans from them will be paying extra.

“Economists are predicting another 50 basis points increase in the cash rate next week which would mean people who are paying back home loans are going to be paying much higher costs,” he added.

“It would cost about five grand extra a year in repayments, and for somebody paying back a loan it’s quite a high impact for homeowners.” 

But for customers of the other big four banks, anyone trying to cash in on green home loans will be sorely disappointed.

Neither Westpac, NAB or ANZ offer green home loans.

“At this time, we have not announced a green home loan offer, but we did recently announce an offer for customers purchasing an electric vehicle,” a Westpac spokesperson said.

Joel Larsen, Head of Strategy, Product & Pricing, Consumer Finance at Westpac said that the green loan for electric vehicles was a step towards Australia’s net-zero future.

“There are lots of Australians weighing up whether to go green with their next car purchase and we know cost is one of the biggest barriers; we hope our offer will help more customers make the switch to a greener vehicle,” he said.

Originally published as ‘Green banking’ can cut thousands off your mortgage payments