Financing Your Geothermal System Installation
How do you pay for the installation of a Geothermal Heat Pump (GHP)? We know it is a great investment, but how do I afford the entry investment of twenty plus thousand dollars? If this will essentially pay for itself over the next 7 years, and then save me thousands of dollars per year thereafter, shouldn't I be able to borrow this money very easily?
Well let's examine our options. First, if you are building the new home it is simple. Add it to the installation cost of the new home construction and finance it as part of the principle mortgage. You will realize the savings of the GHP immediately. Remember to take the 30% tax credit into account as you explore your options. Tax Credit = money returned on most tax returns. The government realizes this is a good investment in our future and will give you 30% of the cost back as a tax credit. (Not a tax deduction but a tax credit, maybe your math will show it as a 30% discount in cost.)
If you are retrofitting an existing home with a GHP you need to determine the best manner that suits your current financial position.
Luckily, there are various options when it comes to financing your geothermal heat pump installation. Let's take a look at them.
- Pay Cash - The best way. No debt, no interest. Realize home heating and cooling savings immediately. But if you are like most, this is not likely.
- Home Equity Loan - This is the most popular manner. You might already have a Home Equity line of credit or can apply for one. This is sometimes referred to as a 2nd mortgage. A home equity loan allows you to utilize the equity within your home to purchase improvements to maintain and improve your home. When most folks do their taxes at the end of the year, the interest paid on this type of loan is a tax deductible.
- HUD Title 1 loan - This is basically a second mortgage and much like a home equity line of credit. Title one will only take a 1st or 2nd position on a home. If you already have a home equity loan, or line of credit this is most likely not for you. If you only have a 1st mortgage and little to no equity in the home this might be a good avenue for you to research. If you are planning on improving the value of the home (building equity) and staying in the home for ten or more years GHP is the right place to start. Decrease the cost to Heat and Cool your home and use the saving to pay off this debt.
- Private loan - Check with your GHP contracts to see if they have credit offerings. In the near future this industry will start to become very creative to help afford the installation. Think about it. The government is giving a 30% rebate, interest rates are low, and you can calculate a savings. If we were a GHP contractor we might be working with our banker to find a way to increase our opportunities by offering our customers alternative means to purchase a GHP.