How to "finance" new ac/furnace/water heater for my house

[ChoicesChoices]

Hello Mustachian community, I have an interesting situation that has just presented itself.  I could sure use another (few hundred) pair of eyes on this:

My water heater has a small leak (not an emergency yet).  Could repair it, but it is 26 years old!  Probably best to replace with a more efficient one.  Planning on storage type, 50 gal.  So I also took a look at AC and Furnace.  They are also 26 years old.  So I'm getting estimates for replacing all 3 at once, to try to get some good discounts.  First estimate is $11,290 for replacing all 3.  I will get other estimates but wouldn't really expect them to be too far away from that.  So now I am thinking of ways to pay for this...cash (hate to drain the super liquid coffers like that), or use the interest-free financing they have for 12 months and then get a home equity loan (at 5.5%), or use that interest-free financing and refi my house.  It is this last option I'm really looking at and stacks up this way. 

House is worth about $190,000, owe $116,000, currently financed as a 15-year fixed mortgage at 3.75% with 13 years to go, payment of $959.93.  I plan on staying in this house 7 more years (till last kid is off to college), then selling and not necessarily buying again (I'll be retired by then and don't need to be anchored to any one place).  I COULD refi for $130,000 on a 10/1 ARM (10 years at 3.625%) which results in a payment of $592.87.  That would give me the $$ to pay for the refi (~2100), and the new waterheater/ac/furnace , and free up $366.46 per month of cash flow.

Soooo, do you see any issues/holes in the refi plan? Are there other options I might not be thinking about?  Other comments about any of the implied assumptions I've made in any part of this (be kind please).

Thank you!

[Another Reader]

Replace the water heater and be thankful for its long life.  Replace the other items when they break.  You may move before they go.  If not, cash flow the replacements when it happens.  Bulk up your savings in the meantime.

[exstrax]

Agree with above.  Hot water heaters usually last about 10 years.  Your unit is on borrowed time.  Replace.  When they go, they usually flood the basement. A 40 gallon bradford white gas fired hot water heater should run about $1000 installed by a licensed plumber.  However, when furnace and AC units go, they just stop working and they don't take too long to replace. Having all three installed at the same time won't really get you a discount either.  What type of heating system do you have? The quotes vary widely depending on the size and quality of the unit.  But typically a gas fired forced air system with new AC compressor should run no more than $5000 installed.  Call a bunch of different contractors and you'll get a better idea of pricing. 

I'd stay away from the ARM and keep your current mortgage if you can.  Having a variable rate mortgage might seem appealing since they quote rates lower than fixed rates mortgages, but if rates go up (and they most likely will), your payment might become more than you can handle.  Also, the closing costs for the refi will probably cost more than your new hot water heater. I'd stay away.

credentials - construction project manager / real estate investor

[Rural]

Ditto on replace the water heater and leave the rest alone.

Is your water heater gas or electric? If it's electric, you can replace it yourself (I know nothing about gas ones). A new 50 gallon one shouldn't run more than $400.

[Spork]

Ditto on replace the water heater and leave the rest alone.

Is your water heater gas or electric? If it's electric, you can replace it yourself (I know nothing about gas ones). A new 50 gallon one shouldn't run more than $400.

Gas isn't much harder.

For a price comparison, we just had a plumber replace my mother-in-law's gas heater.  (I don't like to do electric/gas work on other people's stuff.)  It was about $950 for a 50 gallon heater installed.  This included bringing it up to current code (1964 house).

[gimp]

For financing, 0% is always great, as long as you can earmark the money to pay it off, and aren't tempted to spend it on other things. Milk the 0% and when it runs out pay it in cash.

[Purple Economist]

Agree with above.  Hot water heaters usually last about 10 years.  Your unit is on borrowed time.  Replace.  When they go, they usually flood the basement. A 40 gallon bradford white gas fired hot water heater should run about $1000 installed by a licensed plumber.  However, when furnace and AC units go, they just stop working and they don't take too long to replace. Having all three installed at the same time won't really get you a discount either.  What type of heating system do you have? The quotes vary widely depending on the size and quality of the unit.  But typically a gas fired forced air system with new AC compressor should run no more than $5000 installed.  Call a bunch of different contractors and you'll get a better idea of pricing. 

I'd stay away from the ARM and keep your current mortgage if you can.  Having a variable rate mortgage might seem appealing since they quote rates lower than fixed rates mortgages, but if rates go up (and they most likely will), your payment might become more than you can handle.  Also, the closing costs for the refi will probably cost more than your new hot water heater. I'd stay away.

credentials - construction project manager / real estate investor

$1000 for a tank water heater?  I am reminded again why I don't call plumbers.  I just put in a Rinnai RU98 tankless for less than $1000 (with rebates and including all supplies).

$5000 (plus or including tax?) for a complete system replacement seems a bit low.  It all depends on what kind of equipment, the efficiency of the equipment and the size of the equipment.  I just had a 3.5 ton Trane XR16 (with variable speed fan SEER 18) with a Trane XV95 furnace (variable speed motor, 95% efficient) put in for $6600 plus tax.  I got $600 back from CenterPoint, so my cost is $6000 plus tax.  The install includes the evaporator, new thermostat, new venting, wire whip, etc.

One thing I would suggest if your furnace is 26 years old is to have the heat exchanger inspected if you have not done so already.

[Another Reader]

Forgot to respond to the mortgage question.  First, you may want now to sell in seven years, but life is unpredictable.  You may change your mind or your circumstances may change.  You have a low rate on your mortgage, and you will have paid off a decent chunk of the principal in another 7 years.  If you refi, your payments will be lower, but your balance will be much higher because the 10/1 ARM uses a 30 year amortization schedule and you will only be seven years in.

A good CO detector will let you know if combustion products are coming into the house through a cracked heat exchanger.   It's a good idea to have it looked at if there is any question.

I replaced an 85,000 BTU 85 percent efficient Night and Day gas furnace last year with a 100,000 BTU 85 percent efficient Trane.  Total cost with tax and installation was $2,000.  95 percent efficient furnaces cost more and are more expensive to install because they need a different type of ducting for the combustion gasses.  They make financial sense in very cold climates, but the payback here would have been 20 years if I recall.

[Lil_Bit]

Ditto on replace the water heater and leave the rest alone.

Is your water heater gas or electric? If it's electric, you can replace it yourself (I know nothing about gas ones). A new 50 gallon one shouldn't run more than $400.

Agreed, replace the hot water heater.  A leak can cause damage to floors and walls and thus causing mildew.  I personally would not finance a hot water heater if you can afford not to. 

I replaced a 16 year old hot water heater with a Rheem 50 gal gas hot water heater, approx $400 or so.  This is a personal choice, but I would recommend buying one from a local Plumbing Supply store and staying away from the ones sold at Home Depot or Lowes.  If you buy directly from the plumber, there is a markup on the water heater.  I was able to save money by buying and picking it up myself with help from friends.  I did pay a plumber to remove and install the new one.  The day the plumber was scheduled to come and install it, I went ahead and drained the water heater myself.  Turned off pilot light, turned off breaker and connected the water hose and let it drain outside.  In my area at least, plumbers will charge you for every minute they are there $65 -$75/hr, so I saved an hour worth of labor by doing this small step myself.

[Argyle]

I don't see why you'd want to finance the replacement water heater when you have savings you can access.  That's what savings are for.  For the stuff that happens.  This happened.  Pay for it and get it over with.

The rule of thumb I've always heard is that it pays to refinance when you can get a rate at least 1% lower for the same deal (or better).  You can't get a 15-year fixed-rate mortgage for 2.75% these days, anywhere I've seen.  And you plan is that you'll be selling soon anyway.  So no point starting over on the 15-year period. 

Again, I wouldn't try anything fancy.  Replace the water heater, nothing else.  Pay for it.  Keep the rest of the money in savings/investments as always.

[ChoicesChoices]

This is why I love this community!  Can't thank you all enough for your time! 

@AnotherReader: thanks, that was definitely my first approach...replace the water heater.  And I'm such a tightwad that since the leak is only at the drain faucet and very small (1 drop every 10 seconds) that I was thinking of just putting a cap on it!  Nothing else wrong with the heater other than it is 26 years old (yes I'm thankful!).  My thinking was...well if I'm going to sell this house in 7 years, I'm going to have to replace the water heater before I sell anyway, might as well get the benefit of replacing it now.  Not sure if that logic holds water (haha) or not.    Thanks also for your subsequent post on the mortgage.  You make good points.  Also about the CO monitor...yep I have one and no issues reported by it (yes the batteries are fresh ;) )...and one of the technicians did mention being "worried" that I have a cracked heat exchanger.  Wasn't sure if it was a scare tactic or not.

@exstrax: the water heater and furnace are both natural gas.  I've had 3 companies over today and for the water heater/furnace/ac package I've got estimates of $5755, $8348, and $11290 for 80% efficiency 2-stage gas furnace at 90K-100KBTU and 3.5 ton AC unit plus 50-gal 80% eff gas water heater.  (also thanks for the comments on the ARM -- that was why I picked the 10/1 ARM as it makes the payment not variable for 10 years and I only plan to be here 7.  Good point and perspective about the closing costs.  I wasn't going to refi just for the water heater...but others seem to echo your sentiments.)

@rural: it's gas.

@spork: really appreciate the info.  The water heater-only estimates I've been getting are $1242, $1250, and $1350 which includes bringing it up to code (my house is 1968).

@gimp: yes, I agree with you...and I have no problem with that kind of discipline at all.  It will be the way I go, especially if I do the water heater only.

@Purple Economist: I appreciate your comment about the $5000 seeming a bit lot.  See the estimates I got above (@exstrax).  That price you got on the super efficient ac and furnace is incredible.  I'm being quoted nearly $10K for that kind of efficiency!  And a tankless water heater installed for less than $1000?!?!  That makes me crazy!  You can see the estimates for the water heater alone up above (@spork).  I HATE dealing with contractors and companies!

@lil_bit: thanks for sharing your experience.  I wish I were more confident in my mechnical skills.  The reminder about local plumbing supply is great!  I will definitely do that tomorrow.  I am worried that at 26 years old, this tiny leak could lead to me finding my garage flooded.  And it's dang cold here so that would be NO FUN to deal with.

@argyle:  yeah, sometimes I start thinking TOO much, eh?  I wasn't ever going to refi just for the water heater, but was thinking of it only if I entertained the $11,000 water heater/ac/furnace replace all at once thing.

I really value the opinions of our diverse community!  Thank you.  More comments welcome...especially in light of those estimates I provided up in the top half of this post.  I'm shocked and frustrated with the huge range of the estimates.

[Argyle]

Also, where in the country are you and what kind of water do you have?  I had heard that thing about water heaters only lasting X number of years, and I thought mine was leaking (it turned out to be water in the basement from another issue).  Anyway, I had the repairman out to look at it, and he said water heaters in this area of the country regularly go 30 or more years with no problems. He's seen one that's 40 years old.  I had been nervous since mine is 20 or so, but he said, "Nope, no worries, it could easily go much longer."  It's the hard water that causes the problems and our water is very soft.  So you may actually be right that you just need to stop that one drip.  (With the proviso that I don't actually have any idea and you need an expert to advise you.)  Another question is what the damage would be if the whole water heater dumped all its water on your basement floor.  If it means ruining carpet and nice possessions, you don't want to take much risk.  If it just means a wet concrete floor till you get the problem solved, it may be worth holding out longer.  I believe mine is now 23 years old.

[ChoicesChoices]

Argyle, that's interesting info.  I'm in Boise Idaho, and lots of people use water softeners here, it seems, so I would suspect (given our watershed is mostly big granite mountains) that we have harder water.  Although in Boise proper, where I am, the water is more conditioned than in outlying areas.  I definitely get hard water stains.  Interestingly there's no sediment in the bottom of the tank, and I don't drain it every year.   I'm pretty risk averse so I won't be able to stand the stress of wondering if it is going to dump all it's water soon.  I will replace it in the next couple weeks.  Thanks for adding more thoughts!

[Purple Economist]

This is why I love this community!  Can't thank you all enough for your time! 

@Purple Economist: I appreciate your comment about the $5000 seeming a bit lot.  See the estimates I got above (@exstrax).  That price you got on the super efficient ac and furnace is incredible.  I'm being quoted nearly $10K for that kind of efficiency!  And a tankless water heater installed for less than $1000?!?!  That makes me crazy!  You can see the estimates for the water heater alone up above (@spork).  I HATE dealing with contractors and companies!

I spent a fair bit of time getting estimates.  I kept going until I found a company I thought knew what they were doing, would listen to my thoughts on the system and charged a fair price.  I had one estimate that was going to be $12,000+.  There is just such a huge range out there.  It takes some time and leg work, but in the end, I was happy with my purchase.

On the tankless, I get a $500 rebate from my gas company and Rinnai has a $200 rebate right now.  Just to be clear as well, I installed it myself.  I had to run some new gas pipe, run a new outlet, install the horizontal termination kit and plumb everything.  I had a few hundred dollars in supplies to do all that.  To have someone else do it, it would have cost $1500 - $2000 for the installation (not including the cost of the water heater).  A friend of mine put one in as well.  I helped him on his and he helped me on mine.

[Daleth]

Ditto on replace the water heater and leave the rest alone.

Is your water heater gas or electric? If it's electric, you can replace it yourself (I know nothing about gas ones). A new 50 gallon one shouldn't run more than $400.

Gas isn't much harder.

It might not be harder but you should check with your homeowner's insurance--i.e., if the gas WH causes a problem, will it be covered if you installed it or only if you hired a plumber--and perhaps also check with your local rulemakers, whoever they are. Most likely the folks who grant (or deny) permits for remodeling work would either be the right people or be able to point you to the right people to answer that question (the question being, am I allowed to do this myself?).

[Spork]

on @spork...

to be clear:
* if it were mine, I'd do it myself.  I can't say whether you're comfortable with that or not.  It's okay if you're not.
* I have a tankless Rinnai and love it
* to totally invalidate comment #1: I had a plumber install it.  (I was building a new house, doing as much as I could myself and had to cut some corners to avoid a 10 year build and the resulting divorce.)
* Plumbers are worth the money.  Seriously.  If you can do it yourself: do it.  But expertise here is seriously worth money.  It takes me 5+ tips to Home Depot to get the right fittings.  But some of them will charge you 2x what the others charge.  Toss those guys. (Hint: look for a plumber that is old and crusty, preferably one that is the only plumber and not "one of a crew.")