If you are a homeowner in California you have probably heard of PACE/HERO loans. They are widely solicited by companies such as Ygrene and Renew Financial (previously CaliforniaFIRST) to install energy-efficient improvements on residential homes. As appealing as they may sound, these loans come at a steep cost. Let’s take a moment and understand the basics of this program.
What are PACE loans?
The PACE/HERO loan’s core purpose is to assist homeowners who don’t have the immediate funds available to do energy improvements. These improvements can be things such as HVAC systems, solar, hot water heaters, roofs, and other energy efficiency projects.
HERO = Home Energy Renovation Opportunity
PACE = Property Assessed Clean Energy
How do PACE/HERO loans work?
The PACE HERO program adds the cost of improvements to your property taxes using a bond. This increases the amount you pay to cover the cost of the work that was completed.
Can you pay off pace loans early?
YES! You can pay these loans off with no prepayment penalty. Refinancing your home to include these loans is usually the best option, as you are not limited by cash out rules. Fannie Mae and FHA considered this refinance a rate and term transaction. Paying the PACE HERO loan off early limits the amount of interest you pay, saving you a significant amount of money.
Can PACE loans be subordinated?
No. Unfortunately, Fannie Mae and FHA will not allow a PACE HELO loan to remain on a property. These loans typically have automatic first lien priority over previously recorded mortgages.
Why this can be detrimental to consumers.
The companies that facilitate the PACE HERO programs have very relaxed guidelines. These loans are given to homeowners without checking credit scores, up to very high limits and without knowing if the homeowner can repay that loan.
That is a dangerous combination.
If you ever want to sell your property your PACE loan must be paid off. Fannie Mae and FHA do not allow you to pass on the PACE obligation to your new buyers. Below is a screenshot of the FHA guidelines.
How do I get rid of my PACE/HERO loan?
The good news is there are a couple of ways to get rid of your PACE HERO loan that won’t damage your pocketbook. You may even save money monthly by lowering the high interest rates that come with the PACE HERO loans.
Refinancing your home using a rate and term refinance is the fastest easiest way to get rid of the PACE HERO loans. By refinancing you will lower your tax bill back down to its original amount. You may even have the opportunity to lower your monthly mortgage payment as well.
To see if this is an option for you, click the button below. We will do a FREE consultation to see if you are eligible to remove the PACE HERO loan.