Homeowner Financing: HVAC Projects

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“Does it feel hot in here to you?” If your air conditioning is on the fritz, you may find yourself asking this question a lot. Heating and air conditioning units are the silent workhorses of the home, quietly working to keep your spaces comfortable and cozy. In fact, you may not even think all that much about your HVAC unit—until it needs a repair, that is!

However, there’s a good reason to start considering your AC or heating unit, even if your unit isn’t acting up. Replacing an aging, inefficient unit can substantially reduce your monthly energy bills. And the less energy you use on heating and cooling your home, the more money you’ll save on your energy bills. But affording a home improvement project like an HVAC replacement isn’t exactly cheap. Here’s what you need to know about HVAC replacement and repairs—and how to get the best bang for your buck when you buy.

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Replace or Repair?

It’s frustrating not to have heating or AC when you need it, especially if you’ve recently paid to have your HVAC unit repaired. A situation like that can have you questioning whether you really want to pay for another part. And if your unit is old or outdated, the cost you’ll pay to have it fixed may not really be worth it in the long run.

So which is better: repair or replace? It depends on the age of your unit and the cost of the repair. If you’ve had your AC or heating unit for more than 10 years, it may be smarter to replace your unit, especially since older models are less efficient and therefore more costly to operate. Here are a few tricks to help you make the decision.

Use the $5,000 Rule. Many HVAC technicians recommend that homeowners use the “$5,000 rule” to help them decide whether repairs are worth the cost. Take the age of your equipment and multiply it by the cost of the repair. If the end result is more than $5,000, you’re better off replacing. For instance, if you have a 12-year-old unit that will cost $500 to repair, you come up with $6,000 when you multiply the two together—so you’re probably due for a new unit.

Consider Your Energy Savings. Although a new HVAC unit can be expensive, that cost may be offset by your energy savings. Why is that? Newer units are designed to be much more energy efficient. For instance, if your AC is over 10 years old, a new ENERGY STAR-labeled unit could perform up to 20% more efficiently. If your furnace or boiler is over 15 years, on the other hand, replacing it with an ENERGY STAR-labeled heating unit will use 15% less energy, according to the Department of Energy’s ENERGY STAR program. In many cases, that improved performance directly translates into savings on energy bills.

Evaluate Your HVAC Performance. Breakdowns aren’t the only indicator that your HVAC unit may need to be replaced. Other tip-offs are rising energy bills, high humidity, uneven heating or cooling (certain rooms in your home are hotter or colder than others), and noisy HVAC equipment—especially metallic or scraping sounds. You may also notice that your heater or AC runs for much longer periods of time than it used to, which is another sign that a replacement is imminent.

Consult Your Contractor. Your HVAC contractor’s advice can prove invaluable when making this decision—but of course, you need to feel like you can trust their recommendations. Make sure you find your contractor through a trusted source, such as a friends recommendation or an online review. Or just ask our representatives here at Modernize to connect you with one of our approved providers.

What Affects the Cost of a New HVAC Unit?

If you’ve weighed the options and decided that a replacement unit is for you, you probably want to know what you can expect to spend on a new heater or air conditioner. That answer is, unfortunately, not as simple as it seems, since many factors can impact the cost of your system.

In general, you can expect to spend at least $1,900 for an economy model, or up to $5,100 for a top-tier unit—which includes both heating and cooling components. However, a range of different elements influence that final price, including some of the following.

The Type of Equipment. There are many ways to heat and cool your home. For heat, for instance, you might have a furnace powered with gas, fuel oil, or electricity. Or you might rely on a heat pump, radiator, boiler, or radiant floor heating system. There’s also a variety of cooling equipment, as well. Central air conditioners are popular, but some homeowners use ductless air conditioning systems or evaporative coolers, as well. Heating and cooling equipment is more or less expensive depending on the type you use. For instance, the median cost for a new furnace is less than the average price for a replacement boiler.

The Model. HVAC units are just like cars—different manufacturers have different price points. Some sellers offer top-tier models with cutting-edge features. Other manufacturers are more focused on affordability, and offer more economical models for budget-conscious consumers. Typically, a single manufacturer will also offer a range of different models at various price points, as well. It’s worth comparing your equipment’s specifics, including the energy efficient rating and warranty, as well as the reputation of your manufacturer, before you commit to a particular model.

The Energy Efficiency Rating. The energy performance of your unit will also impact its cost. More efficient units are typically more expensive upfront than less-efficient models; however, this cost is often offset by your savings on energy bills over time. Efficient models may also be eligible for certain loan programs or rebates that can make them more affordable and convenient to purchase.

Efficiency for cooling equipment is measured using a standard known as a Seasonal Energy Efficiency Rating (SEER). The minimum requirement is 13 to 14 SEER, depending on your location, but modern cooling equipment can run as high as 21 to 25 SEER. Generally, the better the SEER, the higher the upfront cost of equipment—and the more you’ll save on energy bills over time.

Heating efficiency is evaluated using a standard known as the heating seasonal performance factor (HSPF). The minimum HSPF is 7.7, but again, a better HSPF is considered more efficient, and more cost-effective.

As you decide among various unit efficiency ratings, it’s important to consider your home’s climate. For instance, a high SEER air conditioner will be much more important to someone living in a hotter climate, whereas HSPF is more applicable to homeowners in colder regions.

The Size. Size can also affect your unit’s cost. However, bigger isn’t always better here. It’s very important that your contractor properly sizes your unit for maximum efficiency, as a unit that is too big or too small can affect both your energy bills and the comfort of your home. Your contractor should use a special formula, known as the Air Conditioning Contractors of America (ACCA) Manual J calculation, to find the right size unit for your home, based on the square footage, foundation, wall thicknesses, insulation values and more.

Your Contractor. Your contractor has some leeway when quoting a price for your unit. A reliable contractor will not inflate your unit cost, but again, this is why it’s imperative that you find a trustworthy technician for your replacement project. Contact our representatives for a list of verified HVAC contractors.

Keep in mind that your HVAC technician will also charge you for the labor to perform the installation, and may also include costs to repair or replace ducts or change out thermostats if necessary.

Financing an HVAC Replacement

Although HVAC replacements can be expensive, you don’t necessarily have to pay for your project all at once—thankfully, since many HVAC replacements come as a surprise! Paying in cash is always the most affordable option in the long run, so it’s never a bad idea to put down what you can up front. To make up the difference, though, you have several different options.

HomeStyle Energy Program. Fannie Mae’s HomeStyle Energy Program is a mortgage loan designed to help homeowners afford energy efficiency projects, such as a new high-performance HVAC unit. This loan offers limited cash-out refinancing at up to 15% of the “as-completed” appraised value of your home. Essentially, that means that you can refinance your existing mortgage loan at a higher value than was previously loaned to you. The extra funds can be used to pay for energy-efficient improvements for your home. To qualify for the loan, you will need to meet certain eligibility requirements—for instance, your debt-to-income ratio must be under 45%. Visit the program page for more information.

PowerSaver Loan Program. The PowerSaver Loan program is an Federal Housing Administration-insured loan for homeowners who want to make energy efficient improvements around the home, such as installing an upgraded HVAC unit. Under this program, homeowners may choose from either an unsecured loan worth up to $7,500 or a mortgage loan worth up to $25,000. Again, you will need to meet certain eligibility requirements, such as a 660 or above credit score and a maximum 45% loan-to-income ratio. See the program’s official page for details.

Home Equity Loans. Many homeowners use this general finance option to afford home improvements, such as a new HVAC unit. These loans typically come with lower interest rates than other types of loans or credit cards; however, they must be secured by the deed to your mortgage loan. You must have paid off some of your existing loan (in other words, have equity in your home) in order to qualify.

Personal Loans. Unsecured personal loans make a good choice for HVAC improvements, especially since many of these projects come in under $10,000. These loans are administered through your financial institution and do not require you to secure your loan with the deed to your mortgage. Because of this, however, they often have higher interest rates than other loan options.

Credit Cards. Many homeowners rely on credit cards to pay for unexpected HVAC repairs or replacements. Credit cards have the advantage of expediency—you probably already have a credit account at your disposal. But they frequently have higher interest rates, which can make your replacement project more expensive in the long run.

Loans Through Your Manufacturer or Seller. Some HVAC manufacturers offer their own credit cards to help you afford quick HVAC replacements. These kinds of credit programs are also available when you purchase an HVAC unit yourself from a big box home improvement store. Credit approval is quick—it typically takes less than a few minutes—and some cards offer zero percent interest financing for a certain period of time. However, after that initial period, interest rates are very high. Your contractor may also offer their own credit program with similarly high-interest rates.

Loans Through Your Energy Provider. In some areas, regional energy providers offer home improvement loans to help homeowners afford the cost of upgraded HVAC equipment. These loans frequently have favorable interest rates, since it is in energy providers’ best interest that you use less energy. You may also be able to pay for these loans through your energy bills. Check with your local energy provider for more information.

Credits and Rebates for HVAC Equipment

Loans are great, but what’s even better is paying less for your equipment in the first place. In some cases, energy-efficient HVAC equipment is eligible for tax credits or rebates through the federal government or your local energy provider.

Residential Energy Efficient Property Credit. Geothermal heat pumps, a kind of energy equipment that uses heat from the ground to warm your home, are eligible for a tax credit through the federal government. The credit is worth up to 30% of your equipment and installation costs and is applied to your tax liability (in other words, what you owe the IRS) after you calculate your income and deductions.

Rebates Through Your Energy Provider. Many high-efficiency HVAC products are eligible for rebates through local energy providers as well. The value of these rebates depends on your energy provider, but many will save you hundreds of dollars on new heating and cooling equipment. See the Department of Energy’s rebate finder tool for more information on those programs.

Estimating Your Return on Investment

Although it’s common to forget about your HVAC unit until it cuts out, buying new energy-efficient HVAC equipment can actually be a worthy and cost-effective investment for your home. Improved, high-efficiency heating and cooling units can shave dollars off your monthly energy bills, making them well worth the money you spent to have them installed. However, calculating your return on investment ahead of time can be tricky. Here are some ideas to get you started.

Department of Energy Cost Savings Calculators. The DOE provides a few resources for homeowners looking to make energy-efficient improvements to their home. These tools offer formulas for HVAC savings, depending on the cost of your equipment, your unit’s SEER rating, and your average energy costs per kilowatt hour.

Modernize HVAC Cost Calculator. Using the DOE’s calculators can be difficult if you don’t know specific information about your home and your new unit. For a more general estimate of your costs, this free tool is perfect for homeowners looking to repair or replace HVAC equipment. After inputting some general information about your home, such as your zip code and square footage, our tool will provide you ballpark figures for models at various SEER ratings, as well as showing you how much you can expect to save over time with each unit.

Other Ways to Improve HVAC Performance

If your heating unit or air conditioning isn’t performing as usual, the unit itself may not be the problem. Leaky ducts, insufficient insulation, and poor air sealing can all affect the cost of your heating and cooling expenses. Try combining your HVAC replacement with one of these improvements for maximum energy savings.

Check Ductwork. Leaking AC ductwork can reduce HVAC efficiency by up to 20%, according to the Department of Energy. Inspect ducts regularly for leaks, or have a contractor perform a more thorough evaluation.

Improve Your Insulation. Poorly insulated homes can be responsible for a good deal of energy loss, which gets reflected on energy bills. Heating and cooling expenses amount for around 50% to 70% of energy used in the home, according to the DOE, so it’s never a bad idea to consider improving your insulation. That’s especially true if your attic is uninsulated.

Evaluate Your Air Sealing. Heated and cooled air can also seep out through tiny cracks around your windows, exterior openings for pipes, and attic floor. Air sealing these areas can improve energy performance. Consider having a home energy audit performed on your home to show you where conditioned air may be escaping from inside your home.

Consider Purchasing New Windows. Outdated, leaky or insufficiently insulated windows can also cause air infiltration in your home, driving up energy costs. According to the DOE, installing new energy-efficient low-E windows can save you between 12 to 33% annually on your heating and cooling bills, which amounts to an average savings of $100 to $274 a year.

Of course, any home improvement project is personal, so it doesn’t hurt to have a little help with the process. For help gauging your project costs or to be connected directly with a qualified contractor, speak with one of our representatives today for more information. A new HVAC unit? You’ve got this!

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