PACE Loans - the good and the bad...

There has been some buzz going on around about a recent legislation that has passed in California that is now rolling out in Marin County. Have you heard of PACE?  What is it? Is it good or bad? How can this help homeowners?  The talk around town has been very mixed!

PACE stands for Property Assessed Clean Energy.  It is a way for homeowners to finance energy efficiency, renewable energy and water conservation upgrades in their home. These upgrades can include solar panels, new windows, tank less hot water heaters, new heating and cooling systems, insulation, lighting improvements, and water pumps…just to name a few.

There are several companies that partner with PACE to provide this kind of financing.  HERO or SCEIP are a couple common names in our area.  Rates on these loans can be anywhere from 5-10% and the terms can be from 5-20 years. Unlike other loan products, the loan is rolled into the homeowner’s property taxes as an assessment.  The payment is fixed and it stays with the property when transferred in a sale.  Many people can qualify for these loans with little equity in their homes while a home equity line of credit may require more equity in the home and a lot more paperwork for loan approval.

So there are pros and cons for sure.   You may pay higher to carry the PACE loan and it is a fixed payment at a higher interest rate than a HELOC in most cases.  However, the homeowner may be able to get the loan when they cannot pull money out of the house for home improvements because there is not enough e         quity.  In addition, a HELOC is adjustable while the PACE loan is not. Also, when it comes to selling the house, the buyer would have to be willing to take on this extra assessment on their tax bill unless the seller pays it off at close.  There can sometimes be complications in transferring the loan over to the new homeowner.

If you are looking to finance energy efficient home improvements without pulling equity from your home, it can certainly be a great solution for you.  The program is marketed so that the consumer will believe the costs of the loan will offset the increasing costs in energy down the road.  I think this theory is still yet to be determined.  One thing to think about as well, is that this kind of loan is not tax deductible just because it is rolled into your tax bill. So, no perks there!  And if you do plan to sell your home in the future, before the loan is paid off, it could be problematic unless you have planned to pay it off before closing. 

Make sure to consult a professional and your accountant before jumping on this program to ensure that you are making the right decision for your future plans.  If you are purchasing a home, make sure your Realtor reviews the property tax bill and preliminary title report thoroughly with you so there are no surprises in the middle of escrow regarding these kinds of liens on a property.

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