How to Use Home Equity for Energy-Efficient Updates
It’s no secret that energy-efficient home upgrades are expensive. Cost burdens are the primary hurdle for popular energy programs, like solar energy. Even Energy Star appliances are difficult to access without several thousands of dollars of up-front payment. Luckily, there are ways to use the equity that already exists in the home to implement energy-efficient changes.
Refinancing a home, either by adding a second mortgage or replacing the first lien, is a great way to secure the funds necessary for energy-efficient upgrades. Many homeowners are frightened by the concept of taking equity out of the home, and that’s okay. However, when refinancing for this particular reason, you reinvest that money into the property. This, in turn, can increase the property’s value. If you ever decide to sell the home, you’ll reap the rewards of your hard work. In many cases, refinancing at the right time – and for the right reasons – can reap dividends for years to come. Here are some common energy-efficient upgrades and how home equity can finance the venture.
Solar energy is a popular energy-efficient upgrade, but it costs several thousands of dollars to install. Most people finance solar installation through a loan. Depending on the lender and the interest rate, this can be a risky decision. Many homeowners will have the option to finance solar installation in installments, but even that can be tricky to financially negotiate. That said, solar energy is one of the things you can use a HELOC for.
A HELOC, or home equity line of credit, turns home equity into a revolving line of credit – almost like a credit card. This type of financing is perfect for a project like solar installation. The process requires frequent costs over time, and a HELOC allows access to home equity whenever it’s needed. Plus, with a HELOC, homeowners only borrow what they need.
Energy Star Appliances
Energy Star appliances are great upgrades to make to a home. From ovens to refrigerators, these appliances can cut your electricity usage – and cost – over time. Many retailers provide financing options for these purchases, but they often come with a high interest rate. If you want to upgrade your kitchen or laundry room appliances, consider a home equity loan. This type of loan utilizes your existing equity to provide funds at a low interest rate.
Roof and Insulation Upgrades
Like with solar, there are other large expenses associated with energy-efficient housing. Some of the most common include roof repair/replacement, added insulation, window replacement, and heating/cooling system replacement. These upgrades can be extremely expensive, and they may occur over the course of many years. While a HELOC can be a great option for high-cost upgrades, the draw period only lasts for a certain period. If you’re contemplating any of these upgrades, consider a cash-out refinance as your primary funding mechanism.
A cash-out refinance provides your funds in a single lump sum, which you can then use as you wish. While receiving all the funds at once can be a burden, placing that money in a high-interest savings account can allow you to continue reaping interest accumulation as you work through your list of home upgrades.