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Best Option to Refinance Solar Company Loan

What is the best option to refinance a loan from a solar company?

Michael Jensen, Mortgage and Finance Guru
, Mortgage and Finance Guru

Your best options to refinance a solar company loan are a home equity loan or line of credit (HELOC), a cash out refinance or home renovation mortgage.  The financing option that best meets your needs depends on your current mortgage rate, how much equity you have in your property as well as your financial and personal goals.  We review these options below so you can determine financing approach that is right for you.

Option 1: Home Equity Loan or HELOC

If you have enough equity in your home but you cannot lower your mortgage rate by refinancing then it usually makes financial sense to use a home equity loan or HELOC to pay off the solar company loan. Additionally, if you do not want to refinance your first mortgage -- because you have a low mortgage rate or for another reason -- and only want to pay off the solar company loan, then a home equity loan or HELOC is your best alternative.

Because you are borrowing a smaller amount of money a home equity loan or HELOC is a more targeted financing option than a refinance so the closing costs are usually lower. The lower loan amount also reduces your total interest expense over the life of the loan as compared to a refinance.

Another potential benefit of a home equity loan or HELOC is that some lenders may permit a higher combined loan-to-value (CLTV) ratio of 85% to 90%. So if you do not have enough equity in your home to do a cash out refinance, which typically uses a maximum LTV ratio of 80%, you may be able to qualify for a home equity loan or HELOC if the lender applies a higher CLTV ratio.

The table below shows home equity loan and HELOC interest rates and fees. We recommend that you reach out to multiple lenders to determine the loan you qualify for. Shopping lenders enables you to compare your options and find the best loan terms no matter what option you choose to refinance your solar company loan.

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Current Home Equity Loan Rates as of November 21, 2019
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Data provided by Informa Research Services. Payments do not include amounts for taxes and insurance premiums. The actual payment obligation will be greater if taxes and insurance are included. Click for more information on rates and product details.

Option 2: Cash Out Refinance

The advantage of using a cash out refinance to pay off a solar company loan is that you may be able to both reduce your current mortgage rate and lower your total monthly debt payments, especially if your new rate is also lower than the interest rate on the solar loan.  For example, if your current mortgage rate is 5.000%, your solar company loan interest rate is 6.000% and the rate on a cash out refinance is 4.750%, you can reduce your monthly debt expense by refinancing.

This option also enables you consolidate two loans into one new mortgage which simplifies your finances.  Additionally, if you currently have an adjustable rate mortgage (ARM) or interest only loan, you could use this opportunity to refinance into a fixed rate mortgage, which offers greater certainty and less risk.

Please note that if you choose the refinance option, the mortgage is categorized as a cash out refinance even if you personally receive no proceeds from the loan. Cash out refinances usually have stricter qualification requirements and moderately higher mortgage rates than a standard refinance.

The table below shows refinance rates and fees for leading lenders in your area.  We recommend that you contact at least five lenders to compare loan terms and understand if a cash out refinance makes financial sense.

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Current Refinance Mortgage Rates as of November 21, 2019
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Data provided by Informa Research Services. Payments do not include amounts for taxes and insurance premiums. Click for more information on rates and product details.

For a cash-out refinance to be a viable option you need to have sufficient equity in your home to qualify for a large enough mortgage to pay off both your existing first mortgage balance plus the solar company loan, without exceeding the lender's LTV ratio limit.  Your LTV ratio represents your new mortgage amount divided by the appraised fair market value of the property. 

For a cash out refinance of a single unit property, the maximum LTV ratio is typically 80%, which means you can borrow up to 80% of the value of your property.  Additionally, some states, such as Texas, apply different regulations to cash out refinances.

Use ourCASH OUT REFINANCE CALCULATORto determine if you have enough equity in your home to pay off your existing mortgage and solar company loan

If your home is not valued highly enough or your combined mortgage and solar company loan balance is too high, you may not have enough equity in your home to pay off both loans with the new mortgage. On a positive note, because the solar panels are already installed on your home you should benefit from a higher appraised property value and greater homeowners equity, which may make it easier for you to qualify .

Option 3: Home Renovation Mortgage

A home renovation mortgage enables you to refinance an existing mortgage and include the cost of significant home improvements in your loan amount. Although these loan programs are typically used to buy homes, they may also be used to refinance your mortgage and solar company loan.

The main advantage of home renovation mortgages is that they allow a higher maximum LTV ratio than a cash out refinance. So if your homeowners equity is relatively low, a home renovation mortgage program may be a good option. We review some of the most popular home renovation loan programs below.

FHA 203(k) Mortgage.  You can use the FHA 203(k) Program to refinance your current mortgage plus your solar company loan. An FHA 203(k) mortgage permits an LTV ratio of 97.75% for a refinance, which is significantly higher than the ratio used for a cash out refinance.  The higher the LTV ratio used by the lender, the higher your maximum mortgage amount.

FHA 203(k) mortgages are provided by approved lenders such as banks, mortgage brokers and credit unions.  We recommend that you contact multiple lenders to learn more about program guidelines and terms.

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Current FHA Mortgage Rates as of November 21, 2019
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Data provided by Informa Research Services. Payments do not include amounts for taxes and insurance premiums. Click for more information on rates and product details.

CHOICERenovation Mortgage. The CHOICERenovation Program enables you to refinance your mortgage and solar loan with a maximum LTV ratio of 97% for a single unit property.  This program is also offered through traditional lenders.

HomeStyle Renovation Mortgage. The HomeStyle Renovation Program also permits an LTV ratio of 97%, which increases your financing capacity.  The qualification guidelines and documentation required for a HomeStyle Renovation loan may be reduced if you use the mortgage proceeds to refinance a solar company loan instead of for property improvements.

You can use the FREEandCLEAR Lender Directory to search over 3,900 lenders by rating, mortgage program and location. For example, you can find top-rated lenders in your state that offer FHA 203(k) and HomeStyle Renovation loans.

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About the author

Michael Jensen, Mortgage and Finance Guru

Michael is the co-founder of FREEandCLEAR. Michael possesses extensive knowledge about mortgages and finance and has been writing about mortgages for nearly a decade. His work has been featured in leading national and industry publications. More about Michael

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