What a PACE payment plan is and how it works

PACE stands for Property Assessed Clean Energy. It is a financing program that lets you borrow money to pay for energy-efficient upgrades or renewable energy systems on your home or business. Instead of paying the lender directly, you repay the loan through an assessment added to your property tax bill — usually over 10 to 25 years.

The lender places a lien on your property, meaning the debt is tied to the building itself, not to you personally. If you sell the property, the new owner inherits the PACE debt and continues the payments. This is different from a traditional home equity loan, where the debt follows the person who borrowed it.

PACE programs are run by local governments, often through a county or municipal authority. The money comes from private lenders, but the local government collects the repayment through property tax assessments. You make one payment per year, usually as part of your property tax bill.

Key Takeaways

  • PACE loans are repaid through your property tax bill as an annual assessment, not through a separate monthly payment to a bank.
  • The debt stays with the property, not with you, so a new owner takes over the payments if you sell.
  • PACE covers specific upgrades: solar panels, heat pumps, insulation, HVAC systems, windows, and roofing — not general home repairs.
  • Interest rates and terms vary by program and lender, so comparing offers before signing is essential.
  • If you have a mortgage, your lender must consent to the PACE assessment, and it will be subordinate to your mortgage debt.

What projects PACE money can cover

PACE funds are limited to specific energy and water efficiency improvements, plus renewable energy systems. Common projects include solar photovoltaic systems, solar water heaters, heat pump heating and cooling systems, insulation, air sealing, energy-efficient windows and doors, HVAC upgrades, and water-efficient fixtures.

Some programs also cover battery storage, EV charging equipment, and cool roofing materials. The exact list depends on your local PACE program — not all programs fund all project types. Before you apply, contact your local authority to confirm whether your planned upgrade is covered.

PACE does not cover general home repairs, cosmetic upgrades, or projects unrelated to energy or water efficiency. It also does not cover the cost of permits, inspections, or contractor licensing fees — those are typically your responsibility or rolled into the contractor's bid.

How much you can borrow and what it costs

Loan amounts vary by program and by property value. Most programs set a maximum loan size as a percentage of your home's assessed value — commonly 10 to 15 percent. A $300,000 home might may have access to for a $30,000 to $45,000 PACE loan, though this varies.

Interest rates typically range from 4 to 8 percent, depending on the lender, your credit, market conditions, and the loan term. Longer terms (20 to 25 years) mean lower annual payments but higher total interest paid. Shorter terms (10 to 15 years) mean higher annual payments but less interest overall.

You will also pay origination fees, which are often 1 to 3 percent of the loan amount, and possibly title search fees or recording fees. Some programs allow you to roll these costs into the loan itself, so you do not pay them upfront. Ask your lender for a full cost breakdown before you commit.

Mortgage lender approval and subordination

If you have a mortgage, your lender must approve the PACE assessment before you can proceed. This is because the PACE lien will be recorded against your property, and mortgage lenders want to know about all liens.

In most cases, the PACE assessment is subordinate to your mortgage, meaning your mortgage lender has first claim on the property if you default. The PACE lender is second in line. Some lenders refuse to allow subordinate liens, so you may need to contact your mortgage servicer first to ask whether they permit PACE.

If your mortgage lender denies the PACE assessment, you cannot proceed with the program. If they approve it, you will receive written consent that you must provide to the PACE program before closing.

The application and closing process

The process typically starts with a contractor or energy auditor who is familiar with your local PACE program. They help you identify may be able to access projects and connect you with a PACE lender. You then submit an application that includes proof of property ownership, a recent property tax bill, and details about the proposed work.

If you have a mortgage, you must obtain written consent from your lender before the PACE program will move forward. This step can take one to three weeks. Once you have consent, the PACE program orders a title search and appraisal to confirm the property value and that no other liens will interfere.

After underwriting, you will receive a loan offer with the interest rate, term, and total cost. You then sign closing documents, which are usually recorded with your county. The lender funds the money, typically paying the contractor directly or sending funds to you to pay the contractor. The assessment appears on your next property tax bill.

What happens if you sell your home

The PACE assessment stays with the property, not with you. When you sell, the new owner takes over the remaining payments. The assessment is disclosed during the sale process, and most title companies will not close the sale until the buyer and their lender agree to assume the debt.

Some buyers will not purchase a property with an active PACE assessment, especially if the remaining balance is high or the interest rate is unfavorable. This can make your home harder to sell or reduce its sale price. Before taking out a PACE loan, consider how long you plan to stay in the home and whether future buyers will accept the debt.

If you want to pay off the PACE assessment early, contact your lender to ask about prepayment penalties. Some programs allow penalty-free prepayment; others charge a fee. Paying off the assessment removes the lien from your property.

Risks and common concerns

PACE programs have faced criticism because some borrowers did not fully understand that the debt transfers to the next owner, or that the assessment could exceed the energy savings they receive. If your home loses value or you need to sell quickly, you could owe more through PACE than the upgrade is worth.

Interest rates on PACE loans are often higher than traditional home equity loans or refinancing, so compare options before committing. Some contractors aggressively market PACE as "assistance programs" or claim the energy savings will pay for the upgrade — this is not always true. Calculate the actual payback period yourself.

If you fall behind on PACE payments, the assessment is treated like a property tax debt. Your local government can place a tax lien on your home or foreclose if the debt goes unpaid for long enough. This is a serious consequence, so only borrow what you can afford to repay through your property tax bill.

Frequently Asked Questions

Can I get a PACE loan if I rent my home or have a second mortgage?

No. PACE requires you to own the property outright or have the consent of all lienholders. If you have a second mortgage, both lenders must approve. If you rent the property to tenants, most programs do not allow PACE because the tenant does not benefit from the upgrade and the debt transfers to the next owner.

What if the contractor does poor work or goes out of business?

PACE programs do not oversee contractor quality or may provide workmanship. You are responsible for hiring a licensed, insured contractor and verifying their work. If the contractor fails to complete the job or does poor work, you still owe the PACE loan. Check contractor references and licensing before signing any contract.

Can I refinance or modify my PACE loan after closing?

Refinancing a PACE loan is difficult because the debt is tied to the property, not to you personally. Some lenders offer loan modifications if you face hardship, but this is rare. Once you close, the terms are usually fixed for the life of the loan.

How does PACE affect my property taxes or credit score?

PACE does not directly increase your property tax rate, but it adds an assessment to your tax bill. Your credit score may be affected if the PACE lender reports the loan to credit bureaus, though this varies by lender. Late or missed payments will harm your credit and trigger tax collection action.

What is the difference between PACE and a home equity loan?

A home equity loan is a personal debt you repay to a bank through monthly payments. PACE is a property debt you repay through your tax bill, and it transfers to the next owner. Home equity loans typically have lower interest rates but require monthly payments. PACE has higher rates but spreads payments over your annual tax bill.