“You need a new HVAC system.” Those six words can stop the heart of even the most experienced homeowner because a whole new HVAC system can cost anywhere from $2,000 to $15,000—or more.
HVAC stands for heating, ventilation, and air conditioning. The components vary, but a typical system might include a furnace, boiler, heat pump, pipes or ductwork, air filter, or air-conditioning compressor.
Given the high cost to replace HVAC equipment, it’s no wonder many homeowners seek out loans to help cover the cost. But with more than a few financing options to choose from, you want to make sure you pick the right one for your needs.
HVAC financing: 4 loan types to consider
There are various types of home improvement loans that can be used to pay for a new HVAC system. So, which one is best for you? Let’s take a look.
Home equity financing
If the current market value on your home exceeds the balance you owe on your mortgage, congratulations – you have equity! You can tap into that equity to help pay for a new HVAC system.
Home equity financing typically offers lower rates than credit cards and personal loans because it is secured by your home. That means, if you don’t make the monthly payments when they’re required, you could lose your home.
There are four main ways to borrow against your home equity:
Home equity loan
If your home is worth more than you owe on it, you may be able to qualify for a home equity loan. Sometimes called a second mortgage, a home equity loan is an additional loan secured by the equity in your home.
You’ll receive the amount in a lump sum, so you’ll have to pay interest on the full amount from the beginning. But rates on this type of loan are typically lower than unsecured loans since your home is used as collateral.
Also, the interest paid may still be tax-deductible under the new tax law, so long as you use the funds to “buy, build, or substantially improve” your home. If you use the loan to pay for personal living expenses – such as credit card debt– the interest will not be tax-deductible.
You’ll want to look out for closing costs and fees, which could make this option more expensive than you’d like.
Home equity line of credit
A home equity line of credit (HELOC) is similar to a credit card in that it offers a credit line that you can borrow against up to your limit. Your credit limit will be determined by your income, debt, credit history, and how much equity you have.
Again, since your home is used as collateral, this option offers a lower rate than unsecured loans. This could save you money, however you risk losing your home if you can’t make on-time payments.
Rather than getting a second mortgage, a cash-out refinance is done by refinancing your existing mortgage and getting a new loan for a higher amount. You will receive the difference between the two loans in cash, which you can then use on anything you want (such as a new HVAC unit!).
2) Personal loan
Most personal loans are unsecured, so you won’t risk losing your home with this type of financing. Some lenders offer a rate discount if you have a certain level of retirement savings or a co-borrower with sufficient income.
These loans typically have a term of 36 to 60 months, although some have shorter or longer terms. Unlike a credit card, which allows minimum payments, a personal loan has a strict monthly payment schedule.
This schedule can help you stay on track to pay off your loan. However, missed payments will hurt your credit, so you should feel confident that you can make the payment every month before you apply.
Origination fees can be 1% to 5 of% the loan amount. For a $10,000 loan, that would be $100 to $500. Toms says, “A good lender will be up-front about fees.”
3) Credit card
If your credit limit is high enough, you can use a credit card to pay for a new HVAC system. That can be a good idea if you plan to pay off the balance quickly, collect cash back, miles, or reward points, and avoid interest charges.
On the other hand, however, if you can’t pay off the balance quickly, a credit card can be an expensive choice because rates are usually higher than other types of loans.
You could also hurt your credit score if you max out one or more of your cards. That’s because your credit utilization—how much credit you use relative to how much you have available—is a component of your score.
Credit cards are relatively easy to get and usually more flexible than a loan since there’s no set repayment schedule.
4) Manufacturer’s financing program
Some HVAC equipment manufacturers and retailers offer in-house financing. These programs are essentially credit cards or personal loans offered through the manufacturer or retailer.
Manufacturers that offer HVAC financing include Lennox, Carrier, and Trane. Retailers that offer it include Sears, Lowes, and Home Depot.
How much does a new HVAC system cost?
It’s difficult to predict the cost of a new HVAC system without getting estimates from installation contractors. Several factors can affect the price, including:
- The climate where you live.
- The size of your home.
- The brand of equipment you want.
- The energy-efficiency of your system.
- How many zones you want to set up.
- How much of your system needs to be replaced.
- Labor costs in your local area.
- Energy efficiency rebates from local utility companies.
- Manufacturer’s rebates
- State air-quality regulations.
However, here are some estimates of what a new HVAC system will cost based on the brand you choose.
The upside: lower energy bills
The upside of buying a new HVAC system is that newer systems are significantly more energy-efficient than older ones.
It may take many years for your annual energy savings to equal the cost of your new system, but your savings should offset at least some of the expense.
Meanwhile, you’ll be toasty in winter, cool in the summer, and have better air quality inside your home.
To get started, discover what personal loan rates you qualify for without hurting your credit score. You’ll receive competing offers from a number of top lenders within minutes. You can then easily compare lenders side-by-side to find your best option.