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HVAC systems have a very important role in homes, since they help maintain a comfortable indoor environment during all seasons of the year. The term HVAC often gets associated with temperature, but these systems also control other important aspects like ventilation and air humidity. However, this comfort has a cost: heating and cooling represent 51% of home energy consumption, according to the U.S. Energy Information Administration.

The initial cost of HVAC systems can be high, especially if you purchase energy efficient units. For example, the upfront cost of HVAC can exceed $10,000 in a 2,000 sq.ft. home. However, financing is a viable option under the right conditions, and this article discusses the pros and cons of using a loan for a new HVAC installation.

Pros of Loan Financing for HVAC

Avoiding a large upfront cost

The main advantage of loan financing is avoiding the upfront cost of home improvements. Even if there are available funds to pay for an HVAC system upfront, a loan frees that capital to be invested somewhere else.

Energy savings

In the case of HVAC, a loan can help cover the extra cost of energy efficient units. This saves thousands of dollars in energy bills over time, and these savings can help pay the loan. Actually, if the energy savings achieved are higher than the price premium and interest, the total system cost over time will be lower.

To achieve the best results, make sure you are purchasing efficient HVAC equipment. A good recommendation is looking for the ENERGY STAR label from the US EPA, since labeled equipment has been tested for efficiency and performance under federal standards. High-efficiency units will yield more savings, which can cover a larger fraction of the loan.

Consider that efficiency metrics change depending on the type of HVAC equipment:

  • Modern air conditioners use the Seasonal Energy Efficiency Ratio (SEER).
  • Furnaces and boilers use the Annual Fuel Utilization Efficiency (AFUE).
  • Air-source heat pumps use the Heating Seasonal Performance Factor (HSPF).

These metrics can be compared with the gas mileage value of a car. Just like a higher MPG value lowers fuel consumption, a higher HVAC efficiency reduces your power and gas bills. Depending on the type of equipment, the ENERGY STAR label establishes minimum values for the SEER, AFUE and HSPF.

Cons of Loan Financing for HVAC

Interest payment is the main drawback when financing an HVAC system. The initial cost becomes zero, but in exchange the total cost over time becomes higher. However, interest rates vary depending on the loan type, and HVAC financing can work when you have favorable terms.

A home equity line of credit or HELOC is a viable option, especially if you have a good credit record. These loans can be found with interest rates below 5%, and their typical repayment period is 10-20 years. The main drawback of a HELOC is placing a lien on your property, which can make selling difficult if you plan to move in the next 20 years.

Financing options with higher interest rates can greatly increase the cost of an HVAC system, and they are not recommended. For example, if a project is financed over five years at 30% interest with credit card debt, you will pay twice as much.

Final Recommendations

Financing an HVAC installation can be a smart decision under the right conditions. You can take advantage of the loan to purchase equipment with a higher efficiency, and energy savings will help cover the debt over time.

HVAC financing works best if you have a low-interest option such as a HELOC. Loans with high interest rates will make HVAC installations much more expensive, and they can even negate the savings of energy efficient units.

Financing Options at Jennings Heating and Cooling

Interested in financing to get the new HVAC system your home needs? We’d love to go over the options with you. Trust the experts at Jennings Heating and Cooling to help with all your HVAC needs. Contact us today to learn more or to set up a consultation!