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Solar Financing: What's the Best Option for You?

First Republic Bank
December 10, 2020

More than two million homeowners have decreased their dependence on traditional energy sources by installing solar panels during the past 10 years. Still, many would-be solar system purchasers are put off by the high cost of equipment, which can easily top $10,000 or more. Even so, the high-cost barrier can be easily overcome.

There are many solar financing options available for homeowners who want to go green, including a loan (such as PACE), a lease (like a PPA), an energy-efficient mortgage (EEM), or a personal line of credit, like the fixed-rate option offered by First Republic Bank for the installation of solar panels and other planned home expenses.

Each of these options can make it easier and more affordable to add a solar energy system to your home, while simultaneously creating energy consumption patterns that align with your personal values and beliefs. Plus, there could be financial incentives for solar panel owners like an increase in the value of your home, a reduced energy bill, and substantially sized tax credits and rebates.

Types of solar panels and how much they cost

The cost of installing solar panels can vary dramatically, depending on which type of material, its composition, and where or how you plan to install your panels. There are a number of online solar panel calculators that can help provide a jumping-off point for up-front costs and monthly payments while you dig into the details of a system that’s the best fit for you.

Monocrystalline

Higher-efficiency monocrystalline solar panels are manufactured from single-crystal silicon which is formed into bars and then sliced into thin wafers. Known for superior aesthetics and efficiency, these panels have a long life. Still, the perks come with a price. This premium product typically costs somewhere between $1.00-$1.50 per watt.

Polycrystalline

Lower-cost polycrystalline solar panels are made from a meld of multiple silicon fragments, which means they’re less efficient than monocrystalline panels. They’re also less durable and attractive, although cost-conscious buyers may overlook aesthetics in favor of endurance and for a more appealing price tag.

Thin-film

Lightweight and flexible, thin-film solar panels cost about the same as monocrystalline options but aren’t as efficient or long-lasting as either solar option above. Still, the thin-cell panels have the environmental benefit of fewer manufacturing emissions, although they also contain moderate amounts of a known carcinogen, Cadmium, which could be a tough trade-off for green-energy seekers.

Solar power shingles

Solar power shingles mimic the sleek look of traditional roofing, are long-lasting, and have high efficiency, but they’re not widely available and not all types of shingles can be installed on all types of roofs. They’re also expensive, particularly once you factor in the cost to replace your roof. To get the greatest bang for your solar shingle buck, consider aligning your purchase with your already-existing roof replacement timeline.

What is the best solar panel for home use?

Personal preference, local availability and feasible budget are all important factors to consider when embarking on any home improvement project. Even so, if you can afford it and want to make the splurge, solar shingles are a top-of-the-line solar product for the aesthetically minded homeowner. For the cost-conscious, meanwhile, traditional panels still offer the solar horsepower to meet green goals, which can make them an excellent conduit for the reduction of a monthly energy bill and consumption.

How many solar panels do you need?

In general, the number of solar panels you’ll need will depend on where you live and how much energy you use. In general, the average homeowner will offset their current electrical needs with somewhere between 28 and 34 panels. An online estimator like Google Project Sunroof can help you get more info by identifying available solar incentives and tax credits while also predicting your potential environmental impact from installing solar panels.

What solar financing options are available?

Thanks in part to the increasing popularity of alternative energy, there are a number of available financing options for energy-efficient home upgrades, including the purchase and installation of solar panels. Some financing options, like those that come with the purchase of panels, will allow a homeowner to cash in on potential perks like an increase in home value and available federal and local tax incentives. Other options, like a lease or other payment agreement, simply offer a flexible way to pay. Let’s break the options down.

Solar loan

A typical solar loan uses the equity in your home as collateral and is generally available through either a traditional bank or solar panel manufacturer. A solar loan increases your risk profile – it’s a lien against your home – but also gives you the ability to purchase a solar panel system outright, instead of entering into a lease or other payment agreement. (More on this below.)

Like a traditional home improvement loan, interest may be income tax-deductible, but interest rates will vary by lender and there may be undisclosed or unanticipated fees. You’ll also be eligible for any available tax incentives or credits.

Property Assessed Clean Energy (PACE) program

The PACE program is a clean energy loan that’s attached to your home — not to you, as the borrower. Repayment is made directly through an increase to your property tax bill for a set term, usually between five and 25 years. If you sell your home, any outstanding PACE debt remains attached to the home and must be repaid by the new owner.

That can be a perk for a homeowner who doesn’t plan to stay in the home for the long-term but still, it’s worth considering the potential wants and needs of a future homebuyer, who may be turned off by the tax bill bump.

Solar lease

Cash-strapped homeowners can avoid the up-front costs associated with a solar panel purchase by leasing equipment in exchange for a reduction in their energy bills. Leased equipment isn’t owned by the homeowner, though, so installation won’t boost property value or come with tax incentives. In fact, the associated interest rate could add to the overall cost of the system.

An equipment lease could also create a potential pitfall when it comes time to sell your home: an interested buyer may not want to take over the required monthly payments – or may not qualify to.

Solar Power Purchase Agreement (PPA)

The key difference between a solar lease and PPA is in the terms of the monthly agreement. Instead of making a monthly lease payment, PPA holders agree to purchase monthly power from the equipment owner at a pre-set rate. Like a solar lease, a PPA involves the installation of solar equipment that is owned by a third party and doesn’t require an up-front payment. PPA equipment also won’t increase a home’s value; it also won’t yield any homeowner tax incentives.

Energy Efficiency Mortgage (EEM) program

Under an EEM program, a homeowner – or new homebuyer – can use this mortgage to finance the purchase and installation of solar panels. Like any mortgage, the home is used as collateral, and the application and approval process can be lengthy, particularly since an EEM also requires an energy audit and rating.

Personal line of credit

A personal line of credit can be a quick, convenient way to get access to funds for energy-efficient minor home upgrades (or any minor home improvement expenses). The loan is typically unsecured, which means that you do not have to put up your home or other assets as collateral, and available interest rates are typically low. Even better, a personal line of credit can be accessed incrementally as needed, usually over a number of years, and you only pay interest on the funds you use. This flexibility means you can limit borrowing to what you actually need, while knowing you have easy access to additional funds if the project goes over budget.

Is it better to lease or buy solar panels?

Solar panels can be an energy-efficient solution for green-minded homeowners, but let’s face it: the up-front cost and installation can be pricey.

A lease can spread the cost out over a longer period while mitigating the cost of any potential maintenance fees and repair costs (the lease owner is typically responsible for those).

On the other hand, outright ownership comes with additional benefits, like enhanced property value, a federal tax credit and the freedom to work with your vendor of choice if any equipment unexpectedly requires repair. A personal line of credit can help a financially savvy, energy-efficient-minded homeowner get the best of both worlds: access to clean solar energy at a low, affordable monthly cost.

Other Frequently Asked Questions

What are the benefits of going solar?

The combination of federal income tax credits and solar renewable energy credits can substantially cut the cost of a solar installation, making a solar installation more financially feasible for many interested homeowners. Solar panels can also cut or even eliminate monthly energy bills – all while helping the environment by cutting the greenhouse emissions associated with traditional energy sources.

Which states have solar incentives?

There are federal solar programs available, no matter where in the nation you live, but some state residents may receive additional benefits. Policies and incentives differ by state but can be easily researched through the N.C. Clean Energy Technology Center.

How does the solar tax credit work?

The federal solar tax credit is a dollar-for-dollar reduction in a solar panel purchaser’s income tax bill and is awarded as a percentage of the system’s purchase price (22% for systems installed in 2021). To claim the credit, you must own the solar system – leases and PPAs won’t qualify – and it must be installed on an approved property, like your U.S.-based primary or secondary residence. Full solar tax credit details can be found through the U.S. Department of Energy.

What is the best way to finance solar panels?

Clean energy seekers can gain greater financial benefit through the outright ownership of a home solar system. Lease and PPA options offer an entry for homeowners who don’t have access to up-front cash, but they could cost more in the long-term.

Instead, alternate financing options like the First Republic Bank Personal Line of Credit offer an easy way to pay month-to-month, while also preserving the ability to cash-in on available state and federal tax incentives. Plus, as an outright owner of the home’s solar system, a homeowner can benefit from any associated boost in property value.

To get started, run your numbers through the personal line of credit calculator or speak with your First Republic personal banker today.

First Republic’s Personal Line of Credit – access funds with fixed rates from 2.25% APR (with discounts).

1. Annual Percentage Rate. Rates effective as of 06/15/2020 and are subject to change.

Borrower must open a First Republic ATM Rebate Checking account (“Account”). Terms and conditions apply to the Account. If the Account is closed, the rate will increase by 5.00%. Rates shown include relationship-based pricing adjustments of: 1) 2.00% for maintaining automatic payments and direct deposit with the Account, 2) 0.50% for depositing and maintaining a deposit balance of at least 10% of the approved loan amount into the Account, and 3) an additional 0.25% for depositing and maintaining a deposit balance of at least 20% of the approved loan amount into the Account.

Personal Line of Credit consists of a two-year, interest-only, revolving draw period followed by a fully amortizing repayment period of the remainder of the term. Draws are not permitted during the repayment period. Full terms of 7, 10 and 15 years available.

This product can only be used for personal, family or household purposes. It cannot be used for the following (among other prohibitions): to refinance or pay any First Republic loans or lines of credit, to purchase securities or investment products (including margin stock), for speculative purposes, for business or commercial uses, or for the direct payment of post-secondary educational expenses. This product cannot be used to pay off credit card debt at origination.

Personal Line of Credit minimum is $60,000; maximum is the lesser of $350,000 or debt to be repaid at origination plus $100,000. Line of credit cannot be fully drawn at origination.

The terms of this product may differ from terms of your current loan(s) that are being paid off, including but not limited to student loans. By repaying such loans, you may permanently be giving up tax and repayment benefits, including forbearance, deferment and forgiveness, and you may not be able to re-obtain such benefits if this loan is refinanced with another lender in the future.

Contact your legal, tax and financial advisors for advice on deciding whether this is the right product for you. Terms and conditions apply.

Product is not available in all markets. For a complete list of locations, visit firstrepublic.com/locations. Applicants must meet a First Republic banker to open account. This is not a commitment to lend; all lending is subject to First Republic’s underwriting standards. Applicants should discuss line of credit terms, conditions and account details with their banker.

The strategies mentioned in this article may have tax and legal consequences; therefore, you should consult your own attorneys and/or tax advisors to understand the tax and legal consequences of any strategies mentioned in this document.

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