New HVAC Costs Less Than You Think

Dollars Representing Low HVAC Cost

For many people, replacing an HVAC system sounds scary. You have to spend thousands of dollars, and nobody likes dropping that much cash all at once. In fact, most people don't have that much cash to drop at all. They finance the new equipment instead.

But what if a new HVAC system cost less than you thought, even with financing?

Well, it probably does! When you combine the monthly savings of energy efficient equipment and the cash flow boost from special 0% interest financing (more on that in a moment) - or an instant rebate if you opt not to finance - you'll probably be surprised at how affordable a new, high performance HVAC system can be.

And you might not be so scared to invest in one.

A quick note about indoor comfort

HVAC isn't all about numbers, of course. What really matters is that you can be comfortable in your home, 24/7/365.

After all, what's it worth to be able to sit indoors in the middle of July and never feel hot, never have to change the thermostat, and never worry about one room being hotter than another one? Return on comfort is a big deal. It's easily as important - if not more important - than what happens to your bank account balance when you buy new HVAC equipment.

Just be aware that the cheapest system isn't always going to result in the most comfort. The hypothetical system we define below portrays a high performance (but by no means the most expensive) system to provide a sense of what it might cost to replace your current HVAC setup with a more efficient alternative.

The hypothetical 18-SEER, 95% AFUE replacement system

We're about to cover some different scenarios for HVAC replacement costs. But first, we need to make sure our scenarios rely on the same parameters. Otherwise, the numbers won't be very meaningful.

To create these scenarios, we'll pretend you are:

  • Replacing a 10-SEER air conditioner and 80% AFUE natural gas furnace
  • Installing an 18-SEER air conditioner and 95% AFUE natural gas furnace
  • Keeping the new system for 15 years
  • Paying 11 cents per kilowatt hour for electricity
  • Paying 146 cents Ccf (cents per 100 cubic feet) for natural gas
  • Paying $11,700 for the replacement system, including all labor costs
  • Financing all of the $11,700 at 0% interest or paying cash and taking a $1100 instant rebate

This is a common HVAC replacement scenario for the Atlanta area, and the energy costs reflect current rates. As for financing, the 0% interest option reflects a special financing option that PV offers periodically. You actually pay 0% interest for 60 months! It's like putting your HVAC system on layaway for five years, except that you get to use it.

The instant rebate is a real option, too. If you pay with cash, we give you back between $600 and $1200 depending on the equipment you choose.

To calculate the long-term savings of an energy efficient system, we'll also use this energy savings calculator, which draws on the US Department of Energy's savings calculations for modern HVAC equipment. We want our scenarios to reflect reality!

Scenario 1: You're able to pay cash, but should you?

If paying cash for your new HVAC system isn't an option for you, don't worry. Just skip ahead to Scenario 2.

But for some homeowners, it can be tempting to buy a new HVAC system with cash. You've got the money. You just write a check and it's done. Easy.

But with our option to finance at 0% for 60 months, paying with cash doesn't always make sense. Here's why:

  • When you pay with cash for our hypothetical $11,700 system (minus the $1100 rebate), you're out $10,600.
  • When you finance at 0% for 60 months, you can use cash flow to pay your $162 monthly bill and invest the $11,700 you would have spent on HVAC.

Provided you invest the $11,700, financing is actually better for your wallet. Here's how the numbers work out.

Pay up front with cash:

  • Your $11,700 is gone
  • But wait! We give you back $1100. You're actually out $10,600.
  • You save $400 in heating and cooling costs each year (per the energy savings calculator mentioned above)
  • Energy savings over 15 years of owning the system = $6000
  • $11,700 (HVAC equipment) - $1100 (instant rebate) - $6000 (energy savings) = $4600
  • Net cost of your new HVAC system = $4600.00

Whoa! Energy savings over the life of the equipment slashes the cost of your new system by more than 60%! But financing it at 0% interest for 60 months is even better, assuming you save the difference.

Finance at 0% interest for 60 months and save the cash:

  • Put your $11,700 in an account that earns 1.8% interest (a CD or high-yield savings account, say) during the 15 years you own the equipment
  • Make the monthly payment of $195 on the new equipment over 60 months
  • Save $400 in heating and cooling costs each year
  • Savings over 15 years = $6000
  • Earnings from $11,700 investment after 15 years (assuming 1.8% annual growth) = $3600
  • $11,700 (HVAC equipment) - $3600 (earnings on savings) - $6000 (energy savings) = $2100
  • Net cost of new HVAC equipment = $2100

That's right. $2100 dollars for a long-lasting, ultra-efficient heating and air conditioning system. Not bad at all.

By taking advantage of the financing offer and saving your cash instead, your HVAC system costs about as much four months of groceries for a family of four. And while we didn't include it in our calculations, you could also save the monthly cash flow from your lower energy bills and earn even more.

Scenario 2: Finance HVAC and pocket the energy savings

For most people, most of the time, this is the the most realistic way to pay for new HVAC equipment. Even though you're not paying with cash, you can still take advantage of generous 0% financing while using energy savings to improve your monthly cash flow.

Using the parameters of our hypothetical replacement system, you also save 44% on cooling and 16% on heating each year. That's better than what a savvy investor earns in the stock market!

Here's how things shake out, financially-speaking, when you purchase a new system this way:

  • Pay $11,700 over the course of 60 months at 0% interest
  • Monthly bills are just $195, or $2340 per year
  • Save $400 each year on heating and cooling costs
  • Savings over 15 years = $6000
  • $1170 (HVAC equipment) - $6000 (energy savings) = $3700
  • Net cost of new HVAC system = $5700

Thanks to the 0% financing offer, you enjoy a very manageable monthly payment and don't have to drop the whole $11,700 at once. The extra cash flow cuts the cost of your new system by more than half over 15 years!

$5700 for 15 solid years of indoor comfort ain't bad.

New HVAC almost always costs less than you thought it would

Did you notice how you never paid the total quoted cost of a new HVAC system in any of these scenarios? Thanks to energy savings, instant rebates, and special financing, you can almost always reduce the cost of new equipment by a factor of 50% or more.

That doesn't make HVAC cheap - it's a major investment! - but it does mean the sticker price of a new system might not be as scary as you thought.

And when you consider that today's equipment costs less to operate and provides more comfort for your dollar than older units, the value of new HVAC is clear. All in all, purchasing a new system doesn't have to be a huge financial burden. It can be a manageable expense.