What PACE financing is and how it works

PACE stands for Property Assessed Clean Energy. It is a way to borrow money for home energy improvements — like insulation, heat pumps, solar panels, or window replacement — where the loan is attached to your property tax bill instead of to you personally.

When you take out a PACE loan, a private lender gives you the money upfront. You then repay it through an assessment added to your property tax bill, usually over 10 to 25 years. The assessment stays with the property, not with you as the borrower. If you sell the house, the new owner takes over the remaining payments.

PACE is run at the county or municipal level. Your local government does not lend the money — a private company does — but your local government collects the repayment through property taxes. This structure is what makes PACE different from a traditional home equity loan or a contractor's financing plan.

Key Takeaways

  • PACE loans are repaid through your property tax bill over 10 to 25 years, and the debt transfers to whoever buys your house.
  • Interest rates and terms vary widely by lender and location; you should compare offers before signing, because rates can range from under 5% to over 8%.
  • PACE assessments take priority over mortgages in some situations, which means your lender may require you to get their written permission before taking out a PACE loan.
  • Many PACE programs include contractor fraud protections and cooling-off periods, but these vary by county and are not may provide in every program.
  • If you fall behind on PACE payments, the assessment can be foreclosed like a property tax debt, which is faster and has fewer protections than a mortgage foreclosure.

How PACE interest rates and repayment terms work

PACE interest rates are set by the private lender offering the loan in your area, not by a federal standard. Rates vary significantly depending on your location, the lender, the type of improvement, and the loan term you choose. Rates typically range from around 4% to over 8%, though some programs offer lower rates for certain energy improvements like solar.

The loan term — how long you have to repay — is usually between 10 and 25 years. A longer term means lower monthly payments but more interest paid overall. A shorter term means higher payments but less total interest. You should ask the lender for a full amortization schedule showing exactly what you will pay each year before you sign.

Because the assessment is tied to your property tax bill, it is treated differently than a mortgage or personal loan. Your local tax assessor adds the PACE amount to your property tax bill, and you pay it along with your regular taxes. If you pay property taxes through an escrow account (held by your mortgage lender), your lender may increase your escrow payment to cover the PACE assessment.

Mortgage lender permission and lien priority

If you have a mortgage, your lender may require written permission before you can take out a PACE loan. This is because PACE assessments have priority status in some states and counties — meaning if you default, the PACE assessment can be foreclosed before the mortgage is paid off. Your mortgage lender wants to protect their position, so they often demand to approve PACE loans first.

Contact your mortgage lender before you explore for PACE. Ask them directly whether they allow PACE loans and whether they require written consent. Some lenders automatically deny PACE; others approve it with conditions. Getting this answer in writing prevents problems later.

If your lender denies PACE, you still have other options for financing energy improvements: a home equity line of credit, a personal loan, a contractor payment plan, or a utility-run rebate or loan program. Your local utility company often offers low-interest or no-interest loans for weatherization work that may not require mortgage lender approval.

Contractor fraud and cooling-off protections

PACE programs have become a target for contractor fraud. High-pressure sales tactics, inflated project costs, and poor-quality work are common complaints. Many PACE programs now include protections, but these vary by county and are not universal.

Common protections include a cooling-off period — usually 3 to 10 days after you sign — during which you can cancel the contract without penalty. Some programs require the contractor to be licensed and bonded. Others require a third-party inspection before the lender releases funds. A few programs cap the interest rate or require the contractor to disclose the true cost of the work versus the financed amount.

Before you sign a PACE contract, ask your local PACE administrator what protections are in place in your county. Get the cooling-off period in writing. If the contractor pressures you to sign when ready or discourages you from reading the contract, that is a red flag. You can always walk away and find another contractor.

What happens if you sell your house

When you sell your home, the PACE assessment does not disappear. The new owner takes over the remaining payments as part of the property tax bill. This can affect the sale price and the buyer's willingness to purchase.

Many buyers and their lenders view PACE assessments as a liability. Some mortgage lenders will not finance a home with an active PACE assessment, or they require the assessment to be paid off at closing. This can limit your pool of potential buyers and may lower your sale price.

Before you take out a PACE loan, think about how long you plan to stay in the house. If you are likely to move within 5 to 10 years, PACE may not be the best choice because you will not recoup the energy savings before you leave. If you plan to stay for 15+ years, PACE can make more sense.

Default and foreclosure risk

If you stop paying your PACE assessment, your local government can foreclose on the property for non-payment of the assessment, just as they would for unpaid property taxes. This process is usually faster and has fewer legal protections than a mortgage foreclosure.

PACE foreclosures typically require less notice and fewer court steps than mortgage foreclosures. In many states, the county can sell your home to recover the unpaid assessment without a full court proceeding. This means you have less time to catch up on payments or negotiate a solution.

If you are struggling to pay property taxes, you should not take on a PACE assessment. If you fall behind on your PACE payments, contact your PACE lender when ready to ask about a payment plan or deferral. Some programs offer hardship options, though these are not may provide.

Comparing PACE to other financing options

PACE is one way to finance energy improvements, but it is not the only way. A home equity line of credit (HELOC) or home equity loan typically has lower interest rates than PACE but requires you to may have access to based on your credit and income. A personal loan is faster to get but usually has higher rates. A contractor payment plan may have no interest but often includes high fees.

Your utility company may also offer rebates, grants, or low-interest loans for weatherization work. These programs vary by location but often have better terms than PACE and do not require mortgage lender approval. Call your utility company's energy efficiency program to ask what is available in your area.

If you are considering solar specifically, some solar companies offer their own financing with rates and terms that may be better than PACE. Compare at least three offers before you decide. The cheapest upfront cost is not always the best deal when you factor in interest and fees over 15 to 25 years.

Frequently Asked Questions

Can I pay off a PACE loan early without a penalty?

Most PACE loans allow early payoff, but some include prepayment penalties. Check your loan documents or ask the lender before you sign. If you plan to pay off the loan early — for example, when you sell the house — you want to know whether there is a penalty and how much it will be.

What if my contractor does poor work after I have signed the PACE contract?

You still owe the PACE loan even if the work is defective. Your recourse is against the contractor, not the lender. This is why it is critical to hire a licensed, bonded contractor and to get everything in writing. If the work is poor, you can sue the contractor or file a complaint with your state's licensing board, but the PACE lender will not cancel the loan.

Does PACE affect my credit score?

PACE assessments do not typically appear on your credit report because they are property taxes, not personal debt. However, if you default and the assessment goes unpaid, it can be reported to credit bureaus and will damage your credit. Paying on time through your property tax bill keeps it off your credit record.

Can I use PACE for any home improvement, or only energy-related ones?

PACE is designed for clean energy improvements: insulation, HVAC systems, heat pumps, solar panels, windows, and similar upgrades. Some programs are stricter than others about what qualifies. Ask your local PACE administrator for a list of approved improvements before you hire a contractor.

What if I cannot afford the PACE payment along with my mortgage and property taxes?

Do not take out a PACE loan if you are already stretched thin on housing costs. PACE adds to your property tax bill, which is a legal obligation. If you cannot pay it, foreclosure is possible. Explore lower-cost options first: utility rebates, grants from nonprofits, or a traditional home equity loan with a lower rate.