October 11, 2023
Learn what eco-friendly home upgrades can offer you the best return on investment and discover how to finance them.
The emphasis on sustainability has grown over the last few years, with no signs of slowing down. And while making your home eco-friendly comes with a cost — some upgrades more than others — doing so can yield long-term benefits both for the environment and your finances.
Luckily, there are ways to help minimize the upfront costs while still doing your part to help the environment.
Aside from the environmental benefits of having an eco-friendly home, your bank account can see some gains as well … giving the phrase “going green“ a whole new meaning.
Unfortunately, eco-friendly upgrades can be expensive. So much so that homeowners may delay or cancel the upgrades because the cost might be too prohibitive. Luckily, there’s a variety of options to help you find the green to go green.
One way to pay for those eco-friendly upgrades is to use your personal savings account. The nice thing about paying with your own cash — as opposed to borrowing — is you don’t get stuck with any high-interest debt. Plus, you’re also ensuring you can actually afford the purchase because you know exactly what you have to spend.
You may already have a hefty-enough savings account and the wiggle room in your budget to pay for a home upgrade or two. But if you need to spend some time to save up, regularly setting aside money into a savings account until you get to your goal is a solid way to save for the cost of any upgrades. If it’s a high-yield savings account with a high interest rate that allows you to grow your money quicker, even better.
Regardless of the path, there are a couple of things to keep in mind before dipping into your savings.
You can also tap into the equity of your home — the difference between your home’s value and your mortgage balance — to finance your upgrades, either by taking out a second mortgage or by refinancing.
Two examples of second mortgages are home equity loans and home equity lines of credit.
An example of refinancing is cash-out refinancing.
It’s important to note the differences between taking out a second mortgage vs. refinancing.
With a second mortgage, you’re:
When you refinance, you’re:
The Federal Housing Administration’s (FHA) Energy Efficient Mortgage Program provides the ability to finance energy efficient improvements. Under this program, the FHA insures your mortgage used to purchase or refinance your home and the cost of energy-efficient improvements to be made on the home. Those improvements must be “cost effective,” meaning the cost of making the upgrades needs to be equal or less than the money saved on energy from those improvements.
Personal loans can be used for a number of purposes, including home upgrades. You receive the loan amount in a lump sum and pay it back through monthly payments over a set period of time with a fixed interest rate.
Sometimes you may be able to go straight to the source for financing. Some manufacturers and installers of eco-friendly home improvement products — such as HVAC systems or solar panels — may provide their own financing options that allow you to get the desired upgrade and pay it off over time.
As long as you use them responsibly, credit cards can also be an option.
If you’re in the market for a credit card, it’s important to do a little comparison shopping. There are a lot of options, each with their own unique features … you just have to find the right card for you. And remember that applying for a credit card is a hard inquiry on your credit report. So keep an eye out for pre-approval offers or see if you pre-qualify first, both of which carry soft inquiries and won’t impact your credit score.
And, as always, it’s important to factor in your financial situation before you use your plastic for a home upgrade. If you already carry debt and don’t have a good credit score as a result, it may not be the best idea to add to the situation by charging a high-priced item until you have a plan to resolve what’s already there.
So, what are some examples of eco-friendly home upgrades that may provide a strong return on your investment?
With his eyes set on becoming the next great ad man (at least until his comedy writing career took off), Marc earned his journalism degree and went straight into advertising for various gaming and tourism clients. He later expanded his credentials to include public affairs and communications work for several environmental science organizations before returning to his marketing roots. A lifelong scholar with recent studies in strategic communication, Marc enjoys tying humor into his writing and simplifying complex financial subjects into engaging and easy-to-digest content for a wide variety of audiences.
This material is for informational purposes only and is not intended to replace the advice of a qualified tax advisor, attorney or financial advisor. Readers should consult with their own tax advisor, attorney or financial advisor with regard to their personal situations.
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