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Solar Financing : Solar Home Equity Loans

Solar power is an abundant source of free energy, but to harness that energy, it can be quite expensive.  A typical solar power system for an average American home will cost between $10,000-$25,000, which when compared to saving around $100-$150/month on your electricity bill, may not seem worth it.  There's always the option of leasing the equipment, but there's another alternative if you have equity in your home.

Anyone who got burned during the mortgage crisis may cringe at the sound of a home equity loan, but the traditional usage of this type of loan, before the mortgage crisis, was to improve or repair your home using the equity you had built up, with the goal of keeping your home livable and actually adding equity to your home by making the upgrades.  Using this type of loan for a solar power system is exactly this type of upgrade, and depending on your particular situation, you may actually save money by going this route, and add additional equity to your home.

How is this possible?  Let's take a look at the numbers.  Let's say Bob has a home worth $250,000.  Bob has owned his home for 10 years and has built up around $75,000 in equity in the home.  Bob's monthly electricity bill is $125 on average and he has a good credit score.  Let's assume Bob gets a great rate on his HELOC at 3.74% (which is the prime rate as of this writing) and his solar power system costs $12,000.  Here's how the math will work out for Bob over the course of 25 years.

Electricity Bill - $37,500 ($125 x 12months x 25years)
HELOC payoff amt - $14,276 (assuming $125/month)
Savings    - $23,224

These figures don't even include the tax incentives currently available to users of solar power, which can reduce the cost of the systems and increase the savings over the life of the system by thousands.

You can see how with the warranted life of most solar systems (25 years) a solar power system will pay itself off in less than half the guaranteed life of the panels.  Everyone's situation will be a little different, but before you think solar power is too expensive, run the numbers for yourself and see if you could get into a solar power system for the same price, or less than you're paying now on your energy bill. 


SOURCE: 1BOG - One Block Off The Grid
Solar installation companies can either point you to an independent home equity loan provider or they may have their own partnership with a provider that they prefer to work with. Many homeowners choose to find their own servicer or use their existing line of credit to purchase a solar system.

Home equity is the conventional means by which most people have purchased solar systems in the past.
One Block Off the Grid could definitely find a universal provider (and we probably will in the future), but this type of financing is so ubiquitous that we didn’t see forming a partnership in the area something that would cause the tipping point in solar, which is what we’re all about.

So what’s new in using home equity financing for solar?
Some home equity loan products are beginning to take into account the value the solar energy system adds to your home into their cumulative loan to value ratio (CLTV) calculations.  This means more people would qualify for a loan with these products.  If you’re interested, talk to an installer or a bank that offers these loan products.

Maybe you’re thinking “how much value DOES a solar system add to my home?” Well, there’s not a ton of turnover yet in homes with solar so the data is not very clear.  The best summary is from an appraisal journal article written some time ago that states that any energy improvement made to your home adds twenty times the yearly energy savings in value.  So if you were to install double pane windows that save you $300 a year in utility expenses, that adds $6000 in value to your home.

SOURCE: Wells Fargo
A sensible use for your home’s equity A solar energy system can be an investment that builds equity and can provide a long-term financial benefit that exceeds the cost. Using your home’s equity to pay for this major home improvement can make a lot of sense financially:

  • You can get lower rates than with many other types of credit
  • You can choose a line of credit with a variable rate, a fixed-rate advance, or a combination of both including flexible payment options.
  • The interest you pay on your home equity account may be tax deductible (consult your tax advisor)

Makes even more sense with Wells Fargo Wells Fargo is committed to helping you make the most of your home’s equity and your finances with sensible options and resources. For example, our competitive rates get even lower if you select automatic payments with an applicable Wells Fargo Checking Package Account® or a Wells Fargo Home Mortgage Account. Talk to a Wells Fargo banker and see how using your home’s equity and one of the three solar energy providers listed on the next page can benefit you.

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