Secured solar loans: key questions to ask
Are you willing to use your home as collateral?
While a secured solar energy loan will have lower total costs than an unsecured loan, you have to be willing to use your house as collateral. If your financial outlook is uncertain or if you are concerned about your ability to repay a loan, a secured loan may not be for you.
Do you have enough home equity?
Banks use the balance that you owe on your first mortgage and your home’s appraised value to determine the loan amount for a home equity loan. If you’ve already borrowed against the equity in your home, or still owe most of your mortgage, you may want to consider an unsecured loan or a solar lease/PPA.
What are the interest rates for secured loans?
Typically, interest rates on secured loans are lower than those of unsecured loans because they are backed by your home. Your secured solar loan will likely have an interest rate between 3 and 8 percent, depending on your credit score.
What are the terms for secured loans?
Second mortgages typically have term lengths of 10 to 15 years, although some can be as long as 20 years. Loans with longer term lengths have lower monthly payments, but you will pay more in interest over the term of the loan. Be sure to compare your financing options to find the right product for your needs.
How does the overall economics compare to unsecured loans?
Secured loans generally have better interest rates and term lengths than unsecured loans. Assuming your financial situation is secure, you can get a loan that allows you to start saving money right away.
What are the fees for secured loans?
Banks charge approximately $1,000 of fees for secured loans for solar panel systems, which can include:
- Property appraisal fees
- Application fees
- Closing costs such as attorney’s fees, title searches and mortgage preparation and filing
- An origination fee, calculated as a percentage of the overall loan
- Loans with longer term lengths have lower monthly payments, but you will pay more in interest over the term of the loan.
Unlike unsecured loans, lenders offering secured loans are required to disclose all fees and miscellaneous charges for loans upfront.
How long does it take to close a secured loan?
Second mortgages may take several weeks to close, mainly due to the logistics involved in appraising the value of your home. Some secured loan programs may also require you to complete a home energy audit and make energy efficiency upgrades before the solar panel loan can be approved.
What are the tax benefits of secured loans?
As with a first mortgage loan, the interest you pay on home equity loans, home equity lines of credit and FHA solar energy loans may be tax-deductible, and depending on your tax liability, these tax savings can be substantial.
What happens if you need to sell your home?
With most secured loans (excluding PACE loans), you must pay off the balance of the loan when you sell your home. Secured loans can be repaid at any time without any prepayment penalties. Research suggests that homes with solar panel systems sell at a premium, which can help you recover your initial investment.