3 Ways to Go Green With a Home Equity Loan
Taking out a home equity loan to make your home more “green” and energy-efficient can have the long-term effect of increasing your home’s value. But don’t forget the immediate benefits: a warmer home in the winter and a cooler one in the summer.
A green home can also be attractive to homebuyers, as can the lower energy bill that often comes with energy improvements.
“Improving the efficiency of your home and making it more ‘green’ can often require a hefty initial investment,” says Sam Williamson of GreenEnergyDirect2U, a Scottish company that helps homeowners improve the efficiency of their home. “However, the overall benefits of improving the energy efficiency of your home make this an extremely worthwhile investment.”
A home equity loan can help with the major upfront costs of many home improvements, which can take a few years to recoup their costs in savings. The loan uses the equity in your home as collateral, meaning the portion of your home that’s paid for to pay back the loan if needed.
A homeowner with a home valued at $300,000 who owes $100,000 on the mortgage has $200,000 in home equity to borrow against a portion of.
Here are three energy-efficient home improvements to get the most green bang for your buck:
Bob Gentile, co-owner of Natural Solutions in Florida, added solar water heating to his Florida home and solar heat to the pool with a home equity loan. The cost was about $8,000, Gentile says, with about 40 percent being returned through tax credits from state and federal energy programs.
His power bills also dropped — from $250 in the winter and $390 in the summer with the air conditioner on to $150 in the winter and $200 in summer.
“We were on track to get a complete return on our investment in about four years had we not decided to move,” Gentile says.
After adding energy-efficient light bulbs, their appraiser told them that all of the upgrades added about $4,000 to the home’s value, and the lower energy bills made the home more attractive.
Gentile’s home didn’t have solar panels, which are another form of solar power and can provide electricity for a home. Adding solar power can take five to 10 years to get the payback in lower electricity costs, says Vikram Aggarwal, CEO of EnergySage, an online solar marketplace based in Boston.
The average cost of solar power for a home is $30,000, Aggarwal says, with about a 30 percent tax credit. Home equity loans and FHA green loans are the two major loan options for solar, he says.
“Financing is definitely a very, very key issue,” says Aggarwal, adding that homeowners can still buy solar without pulling money out of savings.
“They can practically finance the whole system without pulling any money out of their own pocket,” Aggarwal says.
Solar is more of a financial product than a home product because it locks in electricity bills for 20 years or more during their operational lifetime, helps homes sell faster, and is almost a risk-free financial return, he says.
“The prices are falling every year. Solar is very affordable,” Aggarwal says.
Light-emitting diodes, or LEDs, are the most recent way to save money with energy-efficient lights.
They can be expensive to purchase in bulk, and a home equity loan can give homeowners the flexibility to install LEDs throughout their home and help cut energy bills, Williamson says.
Wood burning stove
“As gas and energy prices continue to rise,” Williamson says, “many homeowners have begun to produce their own heating for their home.”
“Installing a wood burning stove in your home is one of the best ways to improve the energy efficiency of your home, and it puts you in control of your own heating,” he says.