How to finance eco-friendly home improvements with a HELOC

A home equity line of credit (HELOC) lets you pay for green home upgrades without draining your savings. You borrow against the equity you've built in your home, withdraw funds as needed during a draw period of up to 10 years and have the choice to pay interest-only on what you use. Because a HELOC is secured by your home, interest rates tend to be lower than credit cards or personal loans, and the interest may be tax-deductible when the funds go toward qualifying home improvements.

Sustainability is shifting from a popular trend to a way of life, with 85% of U.S. consumers reporting that they have recently purchased or wanted to purchase a sustainable product.

The interest in shifting to renewable, energy-efficient choices shows up in the homebuying process, too. In fact, nearly 80% of homebuyers consider sustainability when making a home purchase decision, according to the National Association of Home Builders.

Fortunately, if you're considering renovations, eco-friendly upgrades can boost your home’s value and save you money. Explore some of the top eco-friendly home improvement ideas and learn why a home equity line of credit (HELOC) may be the best route to a modern, energy-efficient home.

Key reasons to boost your home's energy efficiency

Even with upfront costs, eco-friendly upgrades can deliver real value, whether you're planning to stay in your home or put it on the market. Consider these significant advantages of going green:

• Cost savings: Depending on the upgrades you choose, you might plug up costly leaks, purchase appliances that require less energy or use more efficient heating and cooling systems. With smart upgrades, you can save significantly on your utility bills every month.
• Decreased environmental impact: Energy-efficient upgrades often require fewer resources and minimize waste. You can reduce your carbon footprint without drastically changing your lifestyle.
• Greater energy independence: By producing, storing or using your own electricity, you're less dependent on utility companies. Consequently, you can stress less over price hikes and power outages.
• Increased property value: On average, energy-efficient features boost home values by 2-8%, and homebuyers report being willing to pay over $73,000 more for a green home.
• Financial incentives: Enjoy special financing programs, cash rebates or tax credits for certain eco-friendly home upgrades. Depending on where you live, you may qualify for a variety of federal and state financial incentives, such as the Energy Efficient Home Improvement Credit for a tax credit of up to $3,200/year and the Residential Clean Energy Credit for a tax credit of 30% of the cost of clean energy improvements.

9 eco-friendly home improvements to consider

Once you've decided to make some changes, you'll discover an abundance of choices for building with renewable products, increasing your home’s energy efficiency and creating a living space dedicated to sustainability. Here are nine of the simplest ways to make high-impact eco-friendly upgrades to your home.

1. Add insulation and seal air leaks

Heating and cooling your home require significant energy. If you're losing climate-controlled air through the walls, you'll use more energy and spend more money to keep your home cozy. Sealing your home can yield an average savings of 15% on heating and cooling expenses.

2. Set up a programmable thermostat

Programmable thermostats allow you to schedule your heating and cooling cycles. Set times and temperatures for when you wake up, leave for work, come home and head to bed.

A smart thermostat gives you additional flexibility, learning about your schedule over time, adjusting to your needs and giving you added functionality through an app. Some electric companies offer customers discounts or even free thermostats. On average, you can expect to save 8% on heating and cooling costs throughout the year with smart thermostats.

3. Swap your appliances for Energy Star-approved models

Technological advancements have yielded an ever-improving array of appliances in recent years. Energy-efficient dishwashers and washing machines use less water while offering quieter wash cycles, better rinsing and improved drying. Energy Star refrigerators provide enhanced insulation, cooling and airflow. When shopping for appliances, check the EnergyGuide tags to see how much electricity each model consumes annually.

4. Switch to WaterSense-certified plumbing fixtures

EPA research shows upgrading your showerhead can save four gallons of water per shower. Shower heads and faucets with the WaterSense seal meet the U.S. Environmental Protection Agency's criteria for water efficiency, with a faucet saving an additional 700 gallons of water per year.

Best of all, products designated with these seals have been scientifically and consumer-tested for performance, so you'll still enjoy the water pressure and coverage of a great shower.

5. Opt for low-flow toilets

The average home uses 30% of its indoor water for flushing. The Energy Policy Act of the mid-1990s capped water usage for new, residential toilets at 1.6 gallons per flush, and low-flow toilets typically require just 1.28 gallons per flush, which can mean significant water savings over time. With advancements in gravity- and power-flush technology, low-flow toilets with the WaterSense seal often match or outperform high-flow models.

6. Upgrade to a tankless water heater

Tankless water heaters provide on-demand hot water rather than storing it in a traditional storage tank. Households that require high volumes of hot water, around 86 gallons per day, can see energy savings of 8% to 14% with a tankless water heater. Homes that require less, up to only 41 gallons per day, perform even better, with a potential for 24% to 34% energy savings.

7. Install a geothermal heat pump

Also known as a ground source heat pump, a geothermal system transfers heat between your home and the earth. The system typically provides heating, cooling, humidity control and water heating, and you can install one in any climate.

The energy savings can be significant. Geothermal heat pumps use up to 80% less energy than standard HVAC systems.

8. Mount solar panels

When you generate electricity with solar panels, you produce clean energy onsite. You also consume less from your utility company, which may produce electricity by burning fossil fuels. Need extra incentive? Solar panels can boost property values by 6.9%, with homes with solar selling for $25,000 more than those without.

9. Create an EV charging station

Want your electric car charged and ready to go each morning? Consider installing a home EV charging station. A professional setup typically costs $1,000 to $2,500, but a home charging station offers greater convenience, safety and savings than a public station.

How a HELOC helps you pay for green home upgrades

Many projects that improve your home’s energy efficiency involve the cost of adapting or replacing entire systems. While they'll pay off eventually, you also have to finance them now.

Instead of turning toward credit cards or a personal loan, a home equity line of credit (HELOC) can be an ideal financial solution. A HELOC offers you a revolving line of credit, similar to a credit card but at typically a lower interest rate than unsecured borrowing options. With your home as the collateral, you can often find more competitive rates than traditional borrowing options.

In the HELOC's draw period, usually 10 years, you can withdraw funds as needed up to your credit limit. During this time, most lenders only require you to make monthly payments on the interest for the money you’ve withdrawn. When the draw period ends, it's time to pay off the principal and interest accrued at a variable rate, typically over a 15- to 20-year period.

HELOCs are a popular choice for financing renovations because as you upgrade your home, you're often facing inexact costs and multiple bills arriving over time. Tapping a line of credit can give you the flexibility you need.

Flexible funding for greener living

Investing in eco-friendly renovations allows you to simultaneously protect the planet and optimize your financial health. While the upfront costs of sustainable upgrades can be significant, home equity provides the flexibility you need to fund them on your own terms.

With a Citizens HELOC, you could gain the financial backing to lower your utility bills and seamlessly transition into a high-efficiency home.

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Frequently asked questions

Can I use a HELOC to pay for solar panels and other green home upgrades?

Yes. A HELOC lets you borrow against your home equity to fund eco-friendly improvements like solar panels, insulation, geothermal heat pumps and EV charging stations. You draw funds as needed during the draw period and have the choice to pay interest-only on the amount you've used. The lack of draw requirements makes a HELOC especially flexible for phased green renovation projects where costs arrive over time.

Is the interest on a HELOC used for home improvements tax-deductible?

Under current IRS rules, interest paid on a HELOC may be tax-deductible if the borrowed funds are used to "buy, build or substantially improve" the home that secures the loan. Eco-friendly upgrades such as new insulation, energy-efficient HVAC systems or solar panel installations would typically qualify. Consult a tax professional for guidance on your specific situation.

What's the difference between a HELOC and a home equity loan for financing renovations?

A HELOC is a revolving line of credit that tends to come with a variable interest rate. It works similar to a credit card in that you’re approved to borrow up to a set limit, and are only required to pay interest on the amount you spend or use. A home equity loan provides a lump sum upfront at a fixed rate. For green renovations that unfold in stages with unpredictable costs, a HELOC's flexibility is often a good fit because you avoid paying interest on money you haven't used yet.

How much equity do I need to qualify for a HELOC?

Most lenders prefer that you maintain at least 15% to 20% equity in your home after borrowing. The amount you can access depends on your home's appraised value minus what you owe on your mortgage, along with factors like your credit score and debt-to-income ratio.