August 17, 2023, 3:39 am | Read time: 5 minutes

Whether it’s a gas, hybrid heating system, or heat pump, installing a new heating system is generally a costly investment—sometimes more, sometimes less, depending on the type. While there may be government subsidies, a large portion of the costs still falls on consumers. Those who are still paying off a mortgage, have few savings, or only a small pension might find this overwhelming. So how can you finance the heating replacement in such a case?

Tips for Financing Heating Replacement

“The general rule is to bring as much equity as possible,” says Corinna Merzyn, managing director of the Association of Private Builders. This reduces interest payments. Consumers should therefore also consider liquidating savings or seeking family support, Merzyn advises. But if none of that is an option, there are still other ways to finance the heating replacement:

1. Installment Loan

Taking out an installment loan can be an option. The bank grants a certain credit line that can be used flexibly, says Sandra Duy, an expert on energy renovation at the advice portal Finanztip. The money must then be repaid to the bank in fixed monthly installments.

The advantages of an installment loan over a revolving or overdraft loan, according to Duy: The terms are more favorable and fixed. This way, debtors know from the start what the whole thing will cost them. However, many installment loans have the disadvantage that the installments cannot be adjusted in the short term if, for example, less money is available in a given month. Special repayments are often not possible either, Duy says.

Also interesting: The 7 Most Common Traps in Mortgage Loans

2. Construction Financing

You can take out a construction loan not only when you want to buy a house or apartment but also when you want to renovate, expand, or modernize. If the bank has already registered a mortgage due to the property financing, such loans are easier to obtain, according to Duy. Moreover, the interest rates are generally lower than for installment loans.

But construction financing also has a downside: It is purpose-bound, according to Duy. “The money must really be used within the framework of a modernization or renovation that increases the property’s value.” According to the credit broker Interhyp, construction loans are therefore only sensible from an amount of 35,000 euros. A prerequisite for taking out a loan is that the property is already fully or at least largely paid off, Interhyp says.

Also interesting: 5 Common Questions About Heat Pumps

3. Financing Heating Replacement with a KfW Loan

For those whose heating replacement is only part of a comprehensive energy renovation, Duy suggests considering a low-interest loan from the KfW development bank with repayment grants. The loan amount is capped at a maximum of 150,000 euros. The prerequisite is that the house achieves at least efficiency level 85 after the renovation.

4. Allocated Building Savings Contract

Anyone with an allocated building savings contract, meaning the contract has been saved over a certain period and the necessary minimum amount has been reached, can also use this for the heating replacement. If the saved building savings balance is already sufficient, affected individuals can have it paid out without using the building loan. Otherwise, the building loan can be used as intended.

Disadvantage: It can take many years for a building savings contract to reach allocation maturity. For those who want to carry out their heating replacement soon but do not have an allocated building savings contract, this financing option is not viable.

5. Partial Sale

“If no financing is possible, ultimately only a sale or partial sale with a right of use remains,” says Corinna Merzyn. For many people, selling their property is hardly an option. However, a partial sale could provide them with the necessary liquidity to pay for modernization costs. Merzyn advises sellers in this case to definitely register a right of use in the land register to ensure they can continue living in their property.

Sandra Duy knows that the contracts for partial sales are often difficult to understand, so partial sellers should look closely. Additionally, a usage fee is charged for the use of the sold half of the property, which, according to Duy, can consume the sale proceeds within ten years. Merzyn advises those interested in a partial sale to seek legal assistance to avoid unpleasant surprises.

More on the topic

Home as Collateral When Real Estate Is Worth Using as Loan Collateral

Heating Transition Plans for Heating System Replacement Approved: What Homeowners Need to Know

6. Heating Lease

Those who do not have the money for installing a heating system can also consider renting a system—this is possible. Finanztip has already tested similar rental models for photovoltaic systems. The result: “The providers naturally want to profit from it,” says Duy. Although you don’t have to worry about installation or maintenance, you pay a high price for this convenience and the saved investment. Over the years, you end up paying significantly more compared to self-financed installation.

7. Subsidies

Otherwise, Sandra Duy advises using state subsidies wherever possible. For example, those currently connecting their property to a heating network can receive 30 percent of the costs subsidized, and those installing a solar thermal system or heat pump can receive a 25 percent grant.

An additional ten percentage points of funding are available if a functional oil, gas floor, gas central, coal, or night storage heater is removed. The only condition for receiving this bonus is that the gas central heating must be at least 20 years old at the time of replacement. Duy advises always checking whether the municipality offers its own subsidies.

Important: Applications for federal grants must be submitted to the Federal Office for Economic Affairs and Export Control before construction begins. According to the Federal Ministry for Economic Affairs, the currently applicable funding guidelines are also to be revised in the course of the upcoming adoption of the Building Energy Act.

with material from dpa