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Best options to refinance solar company loan

What is the best option to refinance a loan from a solar company? My solar panels were installed last year and I am interested in refinancing the loan from the solar company.

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

Your best options are to use a cash-out refinance, home equity loan or home equity line of credit (HELOC) to refinance the solar company loan. 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 but they also offer several potential benefits when refinancing a solar company loan as we explain below.  The decision to refinance or use a home equity loan or HELOC depends on the mortgage rate and loan program for your first mortgage as well as your financial and personal goals.

With a cash-out refinance you pay off your current mortgage as well as the solar company loan.  The advantage of using a cash-out refinance is that you may be able to both reduce your mortgage rate and take enough equity out of your home to pay off your current solar company loan. Reducing your mortgage rate can lower your combined monthly loan payments, especially if your new rate is also lower than the interest rate on your solar company loan.

For example, if your current mortgage rate is 5.000% and your solar 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.  Plus, you consolidate two loans into one new mortgage which simplifies your finances.  We provide a comprehensive overview of how a cash-out refinance works for you to review.  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 provides greater certainty and less risk for borrowers.

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 your existing first mortgage plus the solar company loan, without exceed the lender's loan-to-value (LTV) ratio limit.  LTV ratio represents your new mortgage amount divided by the appraised fair market value of the property.  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 a cash-out refinance.  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 equity which should make it easier for you to qualify for a refinance (or home equity loan or HELOC if you decide to choose that financing option).

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

For a cash-out refinance, most lenders apply a maximum LTV ratio of 80%, which means you can borrow up to 80% of the value of your property.  For example, if your property is valued at $100,000, the maximum cash-out refinance loan amount you are eligible for is $80,000 ($80,000 / $100,000 = 80% LTV ratio).  In addition to lender guidelines, please note that some states, such as Texas, apply state regulations to cash-out refinances.  

We recommend that you consult multiple lenders to determine their maximum LTV ratio as well as the loan terms for a cash-out refinance.  You can contact refinance lenders listed on the table below.  We advise you to contact at least five lenders as qualification guidelines vary plus shopping lenders is the best way to save money on your mortgage.

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Current Refinance Mortgage Rates as of May 25, 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.

So the key factors in deciding between a cash-out refinance versus a home equity loan or HELOC are if you can lower your mortgage rate or change your loan program by refinancing. If not, then a home equity loan or HELOC is usually a better financing option. If you have enough equity in your home but you cannot lower your mortgage rate by refinancing then it usually makes more 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 -- for example if you already have an attractive interest rate -- and only want to pay off the solar company loan then a home equity loan or HELOC is your best alternative. 

A home equity loan is a more targeted financing option than a refinance -- because you are borrowing a smaller amount of money -- and usually involves lower closing costs. Another potential benefit of a home equity loan or HELOC is that some lenders may permit a higher LTV ratio, up to 90%.  So if you do not have enough equity in your home to do a cash-out refinance, you may be able to qualify for a home equity loan or HELOC if the lender applies a higher LTV ratio.  We explain how a home equity loan works and how a HELOC works on FREEandCLEAR and also an informative comparison of a refinance to a home equity loan to help you decide the financing option that is right for you.  

Please note not all lenders offer aggressive loan terms so you may need to contact multiple lenders to find one that does.  You can review home equity loan lenders by clicking HOME EQUITY LOAN RATES  We advise you to contact multiple lenders and ask about both a refinance and home equity loan or HELOC.  Contacting multiple lenders is important because some lenders offer more competitive refinance terms while other lenders offer more attractive home equity loan terms.  Shopping lenders enables you to compare your options and find the best loan terms no matter what financing option you choose.

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Current Mortgage Rates as of May 25, 2019
  • Lender
  • APR
  • Loan Type
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View All Lenders

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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.

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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