EE mortgages allow people to borrow extra money for the purchase of an energy-efficient, high-performing home, or for upgrades that will improve a home’s energy efficiency and performance, with the idea that the savings on monthly utility bills will allow the borrowers to make higher mortgage payments.

This allows borrowers to reach a higher loan-to-value ratio than they could without an EE mortgage, and also to pay for major improvements — such as high-efficiency HVAC equipment, new ductwork, and insulation — over time through their mortgage payments.

A “$25,000 energy-efficiency upgrade is much easier to finance over the life of a 30-year mortgage than a credit card or personal loan,” said Cynthia Adams, the CEO and a co-founder of Pearl Certification, which helps homeowners, real estate professionals, and builders understand and document the value of high-performing, energy-efficient homes.

An EE mortgage can be used for the purchase of a new or existing home or a refinancing; planned improvements must be completed within a specific time period, documented, and audited to verify that they will indeed save energy. Recognized energy-rating programs such as the Department of Energy (DOE) home energy score report, or the Residential Energy Services Network (RESNET) Home Energy Rating System (HERS) report are commonly used.

Pearl is increasingly moving into the EE space. Its consumer product, Green Door, guides people planning to make energy-efficiency improvements to their homes. The company can also connect homebuyers and homebuyers to energy raters who can provide the efficiency modeling and contractors who can do the work, Adams said.

Adams said the company is planning to reduce friction in the market with two EE programs — one for new construction and another for energy-efficiency retrofits in existing homes. In addition, in a partnership with TCO Consulting, Pearl in February launched TCO-flex, a software program that compares mortgages on the total cost of ownership (TCO), including energy and water expenses.

“Whereas typical mortgage comparison focuses on interest rates alone, the TCO-flex program compares mortgages by TCO, which can vary significantly when comparing a home built to code to a high-performance home,” Adams said in a press release as TCO-flex was announced. “By capitalizing on the savings of paying less each month on operational costs, more homeowners can afford a high-performance home.”

Adams said that among the EE borrowers Pearl has worked with, energy savings of between 20% and 30% are typically achieved with limited home upgrades. The TCO-flex software, she said, has modeled savings of up to 50% or even 75%, and potentially even more in a home, for example, with solar power.

A number of lenders offer EE mortgages products, from banks to government institutions such as the Federal Housing Administration (FHA) and the U.S. Department of Veterans Affairs (VA). They’re also supported by businesses in the secondary mortgage market, such as the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corp. (Freddie Mac). The “green” portion of an EE mortgage — the part of the loan designated for the upgrades — is typically capped at 15% of the home’s appraised value.

According to information from Freddie Mac, upgrades that can be made with money from an EE mortgage include caulking and weatherstripping, added insulation, air sealing, high-efficiency HVAC equipment and water heater installations, and energy-efficient doors and windows.