Financing a Heat Pump: Loans, Leases, and Payment Plans

Compare financing options: PACE loans, manufacturer programs, traditional loans, leases, and payment plans. Find the best option for your budget.

The Financing Challenge

Heat pumps cost $8,000-$15,000 installed. That's a big upfront expense for most homeowners.

But here's the good news: you don't have to pay all at once. Multiple financing options exist, each with different pros and cons.

This guide breaks down every financing option so you can choose the one that fits your situation.

Financing Options Compared

Option 1: PACE Loan (Property Assessed Clean Energy)

What it is: A loan attached to your property (not your credit). You repay through your property tax bill.

Pros:

• No upfront cost (or very low)
• Long repayment terms (10-20 years)
• Low monthly payments ($100-200)
• Loan stays with property if you sell (buyer assumes it)
• Interest may be tax-deductible

Cons:

• Higher interest rates (6-8% typical)
• Loan attached to property (affects resale)
• Not available in all states/counties
• May affect mortgage refinancing

Example: $12,000 heat pump, 7% APR, 15-year PACE loan = ~$112/month

Best for: Homeowners with limited upfront cash who plan to stay long-term

Option 2: Home Equity Loan or HELOC

What it is: A loan using your home's equity as collateral. Lower rates than personal loans.

Pros:

• Lower interest rates (5-8% typical)
• Flexible repayment terms (5-15 years)
• Interest may be tax-deductible
• Quick approval if you have existing equity

Cons:

• Requires home equity (typically 15-20%)
• Requires good credit
• Your home is collateral (foreclosure risk if you default)
• Closing costs ($500-2,000)

Example: $12,000 heat pump, 6.5% APR, 10-year home equity loan = ~$142/month

Best for: Homeowners with equity, good credit, and stable income

Option 3: Personal Loan

What it is: An unsecured loan from a bank or online lender. No collateral required.

Pros:

• Quick approval (often 1-3 days)
• No collateral required
• Fixed monthly payments
• Flexible terms (3-7 years)

Cons:

• Higher interest rates (7-15% typical)
• Requires good credit (usually 650+)
• Shorter repayment terms = higher monthly payments

Example: $12,000 heat pump, 10% APR, 5-year personal loan = ~$255/month

Best for: Homeowners who need quick approval and don't have home equity

Option 4: Manufacturer Financing Programs

What it is: Financing offered directly by heat pump manufacturers (Lennox, Carrier, Trane, etc.)

Pros:

• 0% APR options (often 12-24 months)
• Quick approval
• Flexible terms
• Often bundled with rebates

Cons:

• 0% APR usually only for short terms (12-24 months)
• After promotional period, rates jump to 15-20%
• Requires good credit
• Limited to specific brands

Example: Lennox 0% APR for 24 months on $12,000 = $500/month for 24 months, then 0 remaining balance

Best for: Homeowners who can pay off in promotional period or have good credit for full term

Option 5: Lease or ESCO (Energy Service Company)

What it is: You don't own the system; you lease it from a company. They handle maintenance.

Pros:

• No upfront cost
• Maintenance included
• Warranty included
• No replacement cost if it fails

Cons:

• You don't own the system
• Long-term commitment (10-20 years)
• Total cost over time is higher than buying
• Can't remove system if you move
• Limited customization options

Example: Lease $12,000 heat pump for $150/month over 20 years = $36,000 total (vs $12,000 purchase price)

Best for: Renters, people who move frequently, or those who want zero maintenance responsibility

Financing + Rebates = Maximum Savings

The strategy: Combine financing with rebates to minimize your net cost.

Financing Decision Matrix

If you have cash: Pay in full. No interest, maximum savings.

If you have limited cash but good credit: PACE loan or home equity loan. Lower rates, flexible terms.

If you need quick approval: Personal loan or manufacturer 0% APR. Fast, but higher rates.

If you want zero ownership: Lease or ESCO. Maintenance included, but higher total cost.

If you're unsure about long-term: Shorter-term personal loan (5 years). Pay it off quickly, own the system.

Questions to Ask Before Financing

• "What's the APR? Is it fixed or variable?"
• "What's the monthly payment?"
• "What's the total interest paid over the loan term?"
• "Are there prepayment penalties?"
• "Can I refinance if rates drop?"
• "What happens if I sell the home?"
• "Are there origination fees or closing costs?"

Key Takeaways

Ready to explore financing options? Get matched with installers who can discuss financing programs and help you choose the best option.