Winterizing your home with a home equity loan
For Jeff Wilson, taking out a $50,000 home equity loan to winterize and expand his Ohio home was a no-brainer.
Since doing a deep energy retrofit, or what Wilson calls "winterization on steroids" where "you milk efficiency out of every little aspect of the home," he estimates he's saving 85 percent on his energy bills now. He started the project in 2009 and completed it in 2012.
The energy efficiency improvements are a lot more worthwhile - adding an estimated 30 percent value to his home - than the immediate depreciation that typical home improvements such as new granite countertops or a pool would have, he says.
"It's a huge opportunity to turn something from a maintenance project into a money making project," Wilson says of his energy retrofit.
Wilson, who wrote a book about the energy retrofit to his home and has worked as a contractor, along with being a host on HGTV, did many of the typical home improvements that the national Energy Star Program says can improve a home's energy use. He spent $25,000 on his, and an equal amount from a home equity loan to rebuild and expand his home.
Here are four of the best improvements for home winterization:
Double-pane windows are common now, but triple-pane only cost 20 percent more, Wilson says. Energy-efficient windows eventually pay for themselves through lower heating and cooling costs, and can reduce lighting costs, according to the federal website Energy.gov.
Sealing air leaks
Insulating a home and sealing air leaks are the most important thing to do to save money on winter heating costs, Wilson says. Before plugging the holes, you need to find them first. To do this, hire a professional to air-seal the home, says Donald Powell, an energy auditor in New Jersey. The cost varies by the size of the house, but a normal house of about 2,800 square feet should cost $500 to $800 to air-seal, Powell says.
The idea of an air-seal is similar to a fireplace, where hot air and smoke rise up a chimney instead of into the home, he says.
A home acts like a chimney when it's cold outside and the air inside is heated. The hot air tries to rise and if it can find an opening in the ceiling or walls, it will rise into the attic, he says. As it rises out of the house, cold air from outside is drawn in to replace it. Sealing the entire attic floor will prevent the hot air from escaping.
Add solar power
Wilson also added solar power to his home, turning a typical monthly electrical bill of $90 to zero.
The upfront costs of solar power can be high, though tax credits and low or nonexistent electricity bills over time can have the panels paying for themselves in a matter of years. Some companies also lease solar panels, requiring no upfront cost.
Improve heating and cooling systems
This can be another costly area of improvement, but can be worth taking out a home equity loan in the long-run.
Most U.S. homes are heated with furnaces or boilers, with the heated air moved through ducts, or heated steam from boilers distributed through radiators, according to the Department of Energy.
Beginning this year (May 1, 2013) for non-weatherized furnaces, and Jan. 1, 2015 for weatherized furnaces, all new furnaces must meet minimum efficiency ratings. These are measured by an annual fuel utilization efficiency, or AFUE. An AFUE of 90 percent means that 90 percent of the energy in the fuel becomes heat for the home and the other 10 percent escapes up the chimney or elsewhere.
All non-weatherized (meaning it's intended for installation indoors) gas furnances and mobile home gas furnaces in the northern half of the United States must have a minimum AFUE of 90 percent.
Older furnace and boiler systems have efficiencies ranging from 56 percent to 70 percent, according to the Department of Energy, while modern systems go as high as 98.5 percent, converting nearly all the fuel to useful heat for a home. Upgrading to a new heating system can cut a fuel bill and a furnace's pollution output in half, the DOE says.
Beyond keeping your house warmer, one of the best things about winterizing a home and paying for it with a home equity loan is that the energy savings will essentially pay for the improvements.
Wilson, for example, doesn't have an electricity bill anymore and his gas bill is 70 percent less.
Given the choice between using a home equity loan to remodel a bathroom and add solar power, the energy efficient choice seems like a no-brainer.
Wave of Home Equity Defaults Coming?
How Refinancing Can Hurt Insurance Rates