Solar Power Loans: Everything You Need to Know

Like buying a car or a major appliance, solar projects are a sizable investment and many people are more comfortable financing them and making monthly payments rather than paying with cash as a lump sum. Those homeowners who don’t want to pay for the entire system up front but are looking to own their solar system eventually have the option of getting a solar loan to pay for their system. Solar panel loans make it possible for homeowners who usually pay their utility bills monthly to make those payments for their solar energy instead. While solar loans present the highest ROI in the long-term of any solar financing option, there are other solar financing options. Homeowners considering this option should fully educate themselves on the pros and cons of a solar loan, and who they are designed for, before settling on their decision. How Do Solar Loans Work? Solar power loans work much like other home improvement loans. The lending company either provides the capital for the loan in a lump sum, or opens up a line of credit that the homeowner can draw upon. The financier and homeowner agree to a certain term for the loan, which determines the interest rate the homeowner will pay on the loan. The homeowner then makes monthly payments towards the loan that includes the interest. Home Equity Loans Home equity solar loans allow homeowners to borrow against their home equity to pay for their solar. Home equity loans normally have 7-20 year terms and require interest rates of around 5%-7.5%.  A positive aspect of home equity loans is that homeowners may be able to write off their interest. With a home equity loan, the system is paid for in one upfront lump sum and is paid off with a steady monthly payment. Home Equity Line of Credit   Unlike a home equity loan, a home equity line of credit allows homeowners to draw upon a line of credit that is obtained through the bank in the form of a credit card or checkbook, instead of providing the entire lump sum of the loan up front. Similar to other lines of credit, the homeowner has the ability to draw upon the credit line as much as needed in an agreed upon term. Similar to a home equity loan, with a home equity line of credit, the homeowner is loaned money against their home equity. The difference with a home equity loan is that as the homeowner pays back the loan, equity that they have to drawn is filled back up. Draw periods vary in length and terms but typically last 10-15 years. Property Assessed Clean Energy Loans (PACE) Another option for solar loans is the PACE loan, the Property Assessed Clean Energy Loan. The great thing about a PACE loan is that someone with a relatively low credit score can still qualify because the loan amount is not based on the customer’s credit score, but rather the assessed value of his property. That’s why it’s paid back through the property tax bill. However, the disadvantage is that PACE loans can create complications when the property is transferred due to the sale of the home, just as leases can. Early and full disclosure at the time of contract can prevent these problems, however. The SunPower by Stellar Solar Mosaic Solar Loan One common loan that we at SunPower by Stellar Solar provide is a solar loan through Mosaic. Mosaic boasts a streamlined lending process that allows for zero down loans with fixed interest rates and multiple term options. There are also no prepayment penalties and little to no loan fees. Currently, the Mosaic loan offers three different terms: a 10-year loan with 3.99% interest, a 15 year at 4.99%, and a 20-year loan at 5.49%.  How Does Solar Save the Homeowner Money? Solar power loans for homes can help homeowners get into solar more quickly and at a reasonable cost. The savings then stem from the energy efficiency of the solar system greatly reducing or eliminating the homeowners’ electric bill. The way it works is that, once the solar is installed, the homeowner enters a new rate structure with the utility, and sells and buys back power to and from the power company in a process referred to as “net metering”. Solar Net Metering The great thing about solar energy financing is that it allows the homeowner to save money on their power bills, and take the money they were paying to the electric company every month and use a portion of that payment to pay for their solar panels. This is a great deal for the homeowner as it allows them to pay for a new home improvement that also supplies their home with electricity, while also allowing them to pocket the rest of the money. The homeowner is also adding to the value of their home by adding an energy-producing appliance to it, which can raise its value if the homeowner is ever trying to sell in the future. This money saving process enabled by solar is made possible by a California state law called ‘solar net metering.’ This law makes it so that homeowners who install solar can earn credit for how much extra solar energy their system produces over the course of a year, instead of day by day or month by month. The way that solar panels work is that, during the middle of the day, the system produces more electricity than the home is consuming. At night the system isn’t producing as there is no light. There is also more power produced during the summer when days are long, and less in the winter when days are shorter. Solar net metering allows homeowners to earn credits during the day when their system is producing power than their home is using, by allowing them to send the extra energy back to the grid at the same price that they would be paying for it. A good metaphor is that the homeowner can essentially ‘bank’ their excess energy through the grid during the day, and can ‘withdraw’ the energy their home needs at night or during the winter. This process, as long as the home is producing as much power as it is using, allows homeowners to minimize or eliminate their power bill, such that they are only making payments towards their solar loan. On average, most loan payments are 20-50% less than the utility bill, so the difference equals savings and/or cash flow to the majority of solar owners. After 5-15 years of making those payments, the homeowner will no longer owe the power company or the loan company and will be doing nothing but saving. In the Short-Term This credit producing and redeeming process that solar energy allows for can enable homeowners to start saving money in the first month of installation. Typically, the monthly solar loan payment the homeowner makes to the financier is less than their power bill was prior to installing the solar. So when the solar system eliminates the power bill, and the homeowner only has to make their solar loan payment, they are saving on the difference, even in month one. In the Long-Term The real value from a solar energy comes from the long-term savings. Once the solar loan is paid off, and the homeowner is no longer paying for the solar, or an electric bill, the savings will stack up for the remainder of the life of the solar system. As many solar loans have no prepayment penalties, the quicker the loan is paid off, the less interest the homeowner has to pay, so even more savings are reaped. Protection from Rate Hikes In both the short and long term, having solar installed protects the homeowner from electric rate hikes, which means that savings compound over time. In this way, it is hard to predict just how much money a solar system will save a homeowner in the long run, because there is no way to predict how much electric rates will go up, but the bottom line is that it is likely much more than we can even fathom. The Federal Solar Tax Credit Homeowners who go with a solar loan are also eligible for the Federal Solar Tax Credit. Also known as the solar investment Tax Credit, or Solar ITC, this tax credit allows homeowners to deduct 30% of the cost of their solar panels and installation from their federal tax liability. This can be a significant chunk of change depending on the size of the system, and seeing as how the average solar system is around $25,000 a pop, this can lead to significant savings. If the homeowner doesn’t have the tax liability the year they install, they can actually roll over the credit to the following years. After 2019, the Tax Credit will be phased out over the next three years, so homeowners who want to get the most savings out of their system should go solar as soon as possible. Who Are Solar Loans for? Solar loans are the least expensive form of solar financing for homeowners who have good credit scores. For those homeowners who have home equity, home equity loans are the cheapest type of solar loan as they boast the lowest interest rates, and most of the time the interest paid is actually tax deductible, much like mortgage interest. There are also solar loans that do not require collateral, although they require higher interest rates. Typically these do not require any money down, and the homeowner may have the option to pay the loan off early with no penalties, something that is not possible with a solar lease. Solar loans can also provide additional value to homeowners who have a tax liability, as being able to take advantage of the federal solar tax credit can add a ton of value to the solar deal. Solar Loan Interest If there is a “downside” to a solar loan, it’s the cost of using someone else’s money or the interest. When the homeowner pays cash, they don’t have to pay that because they’re using their own money. However, interest rates are still relatively low, which means the cost of financing this purchase is also relatively low, especially when compared to how much utility rates go up year after year. For example, in June 2018, SDG&E asked the Public Utilities Commission permission to raise rates 28% over the next four years. Luckily for homeowners in San Diego, the SunPower solar warranty is 25 years, so they won’t have to worry about those repairs or maintenance for many years. SunPower by Stellar Solar has also proven to be the dependable and responsible solar company in San Diego, as we have been in business over 20 years, which is longer than any other local solar company. Our longevity proves that we have the stability, customer service and attention to quality that will ensure our survival in the San Diego solar market. So homeowners looking for the quality, long-lasting solar company in San Diego, look no further. So for homeowners looking into solar who don’t have the cash upfront to pay for the system, but still want to own their system, solar loans are likely the answer. They allow homeowners to go solar for zero down and replace their power bill for the solar payment. So the homeowner literally loses no money, and instead of throwing away their hard-earned money at the power company, they can instead invest in their own home, working towards owning a renewable energy producing machine that will provide value for years to come. A SunPower by Stellar Solar energy consultant can assess your situation to see if a solar loan is right for you.

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