i am your guide to solar finance

Home loan

Using your home loan you borrow the money from your financial institution to pay for the solar system. You then pay the system off with the rest of your mortgage.

You can do this by:

  • using a redraw facility
  • refinancing your existing mortgage
  • buying the solar system when you buy a new home

Some banks offer discounted interest rates for green mortgages. Green mortgages may apply to solar purchases. 

Also known as a green mortgage or mortgage

Finance details

Period Interest rate Early repayment possible
20 - 30 years 4 - 6% Yes

Ownership of the solar system

You own the solar system. 

Financing costs, fees and charges

  • Fixed or variable interest rate.
  • ls likely to incur refinancing/mortgage application fees.
  • You could incur stamp duty in NSW if refinancing increases the size of your mortgage. 

Performance and maintenance costs

You are responsible for monitoring system performance and the costs of any out-of-warranty maintenance required, including inverter replacement. 

Advantages

  • Mortgage interest rates are much lower than any other consumer finance.
  • Smaller repayment amounts spread the cost of the system over a longer time period. 
  • It can be structured so repayment amounts can be covered by energy bill savings during the term of the loan, so you save money.

Disadvantages

  • A longer contract period means paying more in interest and fees over the life of the loan.
  • Refinancing is likely to involve a new home loan application and fees. 

 Managing Risks

  • Only likely to be feasible if you are already planning to refinance your mortgage.
  • You are responsible for making sure the system produces as much energy as you expect and that you use it.
  • You could end up paying up to 25 years of additional interest payments unless you increase the repayments and pay off the solar PV system as fast as you can afford to.

Example

Below is an illustration of how the costs and bill savings could work for a home loan.

In practice these costs and bill savings will vary depending on what you pay for the system, how much energy it produces, how much you use and the period and costs of any payment plans of financing. 

Scenario

Solar project

Solar system size (kW)

3kW

Upfront system cost ($ net STC subsidy)

$5,200

Proportion of power used (%)

67%

Life of system

25 years

Maintenance costs

(Assume a new inverter is required every 10 years)

$4,300

 

Cost of daytime grid electricity

$0.20 to $0.51 / kWh

Payment conditions

Deposit/initial payment

$0

Term of finance

Repayments over 20 years at 5.72% interest.  $600 establishment cost.

Comparison interest rate

7%

Costs and bill savings

Total payments

$13,800

Total bill savings

$20,600

Net savings

$6,800

 

Effective interest rate

7%

Lifetime unit cost of energy

0.15 $/kWh

The chart below illustrates the annual cash flow of energy bill savings and the costs of the solar PV system and finance based on this scenario.

Home loanpurchase of 3kW system for household at home during work days

The chart shows that the costs in the first year are slightly higher than energy savings, but the long repayment term means that energy bill savings are greater than repayments from year two. The system delivers a net saving of around $500 per year for the remaining 24 years, apart from years 10 and 20, when the scenario assumes that the inverter needs replacing.

Note that the net bill savings are relatively low in this scenario because the repayments are spread over such a long period. If the homeowner makes additional repayments to pay the solar PV system off faster, then the total interest costs would be lower and bill savings would be higher.

 

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Page last updated: 18 December 2015