These Tips will Make your Solar Experience Even more profitable
Understanding your Solar Financing Options:
Understanding you solar financing options is usually one of the biggest indices that will give you the biggest return on investment.
A beautiful thing going on in the Solar Industry right now is that you can get solar for – No Money Down & No Money Out of Pocket! It is true but it often creates confusion in the buyer’s mind so it is important to understand it. The confusion is that sometimes people believe that the solar energy system is free, it is not. What is being implied in the above statement is that you will be able to use the money you are already spending to fund the purchase because the financing options do not require any money down. So the money you will save on your power bill will be more than the money you will have to pay to finance the system. I go into much more details in my article “Can I really get Solar for $0 Down and $0 out of pocket”.
The next thing to understand when it comes to your solar financing is what your monthly payments will be vs the duration of the loan. What this means the more your monthly payment for the solar panel system will be the shorter the duration that you will have to pay on the loan. In most cases you can have a monthly payment lower than the amount of money that you will save on your power bill with a 12 financing option or 144 payments. Since your solar panel system hence a performance guarantee of 25 years you will be getting 13 years of energy offset on your power bill which will accumulate to huge savings. That does not factor in the savings you will receive from being insulated from the power companies rate increases which averages 4% per year. That means you will make an additional 4% compounded every year even while you are paying for the system.
You can save money immediately if you choose a 20 year payment plan instead. In this option you will save anywhere from $40 – $80 per month depending on the size of the Solar Panel System you install. You would still see an increased saving of 4% a year as well while making money from day 1. If it is $50 per month that is a cash savings of $600 in year one and in year 2 that would jump to $624. However, you will have to make payments for an additional 8 years but the payments will represent a larger portion of your power bill. The additional 8 years will cost you more in interest because of the additional 96 payments and most of the 20 year options are also at a slightly higher interest rate.
It really comes down to what your main financial goal in regards to going solar. If you are looking for the most return on investment then the 12 year option will give you that because you will be making higher payments (still less than you pay the power company) with a lower interest rate hence lowering your overall actual cost of the system when compared to the 20 year option. The 20 year option often makes sense for people who are on a fixed income and want to lower their overall monthly expenses. So you make less overall but you make more now.
There are many great financing options available today to purchase a solar power system for your home. There are some sub-prime rates available, what that means is if prime is 5%(like it is now) and we are able to offer you a rate of 2.99 then that would be a subprime rate. Our current 12 year option available is at a 2.99 subprime rate. It is great but it does come with a 17% financing charge that is added to the initial cost of the solar panel system. At first look you would say NO WAY! However it winds up being the cheapest solution in the long run and will generate the greatest return on investment other than paying for the system in cash. We have a 20 year available with no financing charges at a 6.95%. So you do not pay more for the system but you will pay a 6.95% interest rate for 20 years.
Now we need to understand what the true cost of the solar panel system is vs the retail cost of the system. The retail cost of the system would be the price of the system with any added in financing charges. The true cost of the system is what you will actually pay for the system. To figure that out you will take your monthly payment at multiply it by the number of payments required to fulfil the loan. If we look at an example of a 12 year 2.99% system that generates $225 a month of electricity. Your monthly payment would start at $220 per month and when you multiply it by 144 (12 years) your true system cost is $31,680. Keep in mind that this option also included the 17% financing charge. Let’s take a look at the 20 year 6.95% (with NO Financing Charges added in) system that generates $225 a month of electricity. Your monthly payments would be $168 per month and when you multiply it by 240 (20 years) your true system cost is $40,320. So the system that had 17% added to the cost saved the customer a total of $8,640. What that means is the subprime rate is a more important variable then the cost of the system. That is an additional $8,640 you can calculate into your return on investment.
You are also able to secure your own financing through a home equity loan. The benefit of that is you can write off the interest that you pay on the loan. You might have a hard time getting a subprime rate but you may be able to get prime (5% in the above example). That combination may save you similar about of money as the subprime rate.
Checking to see if PACE is available in your area may be another option to consider. PACE (property assessed clean energy) allows you to use your property tax to pay for the Solar Panel system. You can spread the cost out over 25 years and pay it through your property tax. This option is only available in certain communities in the Orlando and Florida area. If it is available it will look at the equity that you have in the property as the main qualifier. Hence if you have poor credit this is a great option because it is not dependent on your credit score but it has limited availability. It is also transferable to the new homeowner which means you can get the additional value in your home and not have any other financing options to pay for it.
Retirees have an additional option available, they can look at a hecm loan or reverse mortgage. I like this option for seniors who are looking to free up as much money as they can off of their monthly budgets. With a Hecm loan they can use the equity in the home to purchase the system and then use the equity in the home to make the payments on the system. Essentially freeing up the entire amount of money that they will be saving on the power bill into new dispensable income.