Often, high initial cost is the biggest barrier to improving the energy efficiency of a home. When you are interested in making significant home energy improvements, such as a comprehensive Home Performance with ENERGY STAR project, appropriate financing can make the investment possible and affordable.

The ideal loan combines easy qualification, an attractive fixed interest rate, and a relatively long repayment term. Fixed monthly payment plans that can be offset by energy savings pay for themselves ? the money that would have been spent on energy bills becomes available to make most or all of the loan payments.

A consumer loan can be unsecured (based solely upon the borrower's credit) or secured (backed by something of value belonging to the borrower). In general, unsecured loans will have higher interest rates. On the other hand, secured loans tend to be more complicated and difficult to obtain, with additional fees and paperwork required. Consumer loans are usually for no more than 5 to 7 years.

A secured loan places a lien, or hold, on an item of property to secure the payment of a debt. A mortgage, which places a lien on your home, can be a great option for financing major energy improvements, because mortgages have long terms, up to 30 years, and relatively low interest rates. Home equity loans can also be a good match, because the term is typically longer than consumer loans (up to 15 years) and the interest rate is relatively attractive. A loan can also be secured by a lien on other valuable assets, such as a car or boat.

The least expensive way to pay for energy improvements (or anything else, for that matter!) is to pay cash. Given the size of the typical home energy project, however, few homeowners have this option available to them. Loan terms are important because they affect the monthly principal payments for a loan, as shown in the two scenarios below.

Home Performance with ENERGY STAR Financing: A Sample Project

The following improvements were financed by a Vermont lender and completed by a certified Home Performance with ENERGY STAR contractor:

• Insulation
• Whole-house air sealing
• Duct sealing

The project cost and savings for these energy efficiency improvements under two different scenarios are outlined in the tables below.

MONTHLY CASH FLOW ANALYSIS*

* Note: All situations vary. Actual energy savings may vary depending on such factors as usage, weather, etc.

By adding two years to the term of the loan, the monthly payments can be lower than the energy savings, so the homeowner will start saving money right away. In both cases, after the loan is paid off, the homeowner will realize monthly savings of $98.

Many Vermont lenders offer loans that can be used for energy projects. Both unsecured and secured loans are available with interest rates as low as 5 percent, or 0 percent for income-eligible borrowers, depending on the lender and the type of loan. Lenders offering financing for energy products as of 12/31/09.