With financing, like with the Solar Photovoltaic system itself, their is no one size fits all. The financing package that you pick is custom designed to meet your needs, your expectations, and perhaps your equity position in your home.
In general, solar financing falls into 3 basic categories: 100% of the cost wrapped into your primary mortgage at the time of purchase or refinancing; Home Equity Line of Credit known as a HELOC, where you use the built-up equity in your home to get a 2nd mortgage to pay for 100% of the cost to build a photovoltaic system; or a solar specific zero money down loan where much of the interest fees are front loaded into the cost to purchase the solar system.
All of the 3 basic loan options have a different set of pros and cons but in general you can consider the least expensive options as the first mortgage, 2nd is the HELOC, and the most costly but easiest form of financing is the solar specific loans that many solar integrators such as ARE Solar have available to most customers with Zero Money Down.
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The lowest cost way to buy a solar photovoltaic system is by far wrapping all of the photovoltaic purchase expenses into your home’s 30 year mortgage. Not only is this type of financing the lowest interest rate available to the residential homeowner consumer, but it has the advantage of spreading the cost over a 15 or 30 year time frame. Between the low interest rate and long term, the small portion of one’s mortgage that is paid each month related to the solar system purchase is typically half of what one would have been paying a utility company to buy electricity. So the savings are instant, the first month you are not buying electricity. Plus you get the added benefit of a large tax credit refund check after you file your tax return based on 26% of what the solar system cost you, and get to keep 100% of that windfall payment from the Federal Government.
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If you are one of the many Coloradans that now have equity in their home, due to years of a strong housing market on the Front Range, you have the opportunity to use some of that equity sitting idly in your home to purchase a home photovoltaic solar system for zero cash down. Typically this HELOC has a closing costs under a thousand dollars and can be processed in a few weeks by most local banks. A HELOC will typically have a term between 10 to 15 years and at an interest rate about 1 or 2 percent higher than what a 1st mortgage rate is, but still a very attractive and desirable way to pay for a solar system. In almost all cases the monthly payment to the bank for the HELOC will be somewhat less than what you had been previously paying to your utility to buy electricity… so again you are instantly dollars ahead. Plus, as previously mentioned, that big tax credit check comes to you and is yours to use in anyway you want.
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The most common finance option for the purchase of a solar system is the solar specific loan that is based on your credit score and not necessarily on the equity in your home. With these loans you have many options such as: interest rate; term – years of the loan; or zero payments for a set number of months. All of these selectable variables make this option a very customizable and attractive loan to many people. Currently interest rate options vary between 1.49% and 6.99%, term varies between 10, 12, 15, and 20 years, and zero payment options between 2 to 12 months.
With this kind of loan your purchase price for the solar system is increased based on the financing options you select. If you select an interest rate below market, then in essence you pay upfront to buy that rate down, or if you choose no payments for 12 months, you pay that interest charge upfront and it is built into the purchase price. All giving you maximum flexibility to customize and build a package that best suites your needs. But keep in mind, a higher priced solar system means more money back from the government. So while you have to pay more for the financing costs upfront, the government is paying 26% of those cost for you, causing your dollar saving to be higher.
Another aspect of this type of loan is it typically is designed based on 74% of the solar purchase price. While it is a true Zero Money Down loan, and often no payment for a period of time also, the loan is designed with the assumption that after you receive your Federal Tax Credit refund check (equal to 26% of the cost of the project) that you will mail that amount to the bank within 12-17 months of your system being turned on. So in essence, you got the 26% tax credit fronted to you for a term that allows you to get it back from Uncle Sam and the real loan is based on only 74% of the purchase cost of your solar system.
This loan may cost you monthly about the same as your electric bill or perhaps a little bit more, but within a few years, with the cost of electricity always going higher, your monthly loan payment will be less that what you would have been paying for electricity. Plus, you are making an investment into the value of your home. According to the National Realtor Association a home powered by a solar system will be worth $14,000 to $17,000 more when selling that home compared to a similar home without a solar system.