Your best options to refinance a solar company loan are a cash out refinance, home equity loan or home equity line of credit (HELOC). The decision to refinance or use a home equity loan or HELOC depends on your current mortgage rate as well as your financial and personal goals. We review these options below so you can determine approach that is right for you.
Option 1: Cash Out Refinance
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 .
The advantage of using a cash out refinance is that you may be able to both reduce your current mortgage rate and pay off the solar company loan. Reducing your mortgage rate can lower your total monthly debt 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%, 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. 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.
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.
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 loan-to-value (LTV) ratio limit. Your 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 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 should make it easier for you to qualify .
Use ourCASH OUT REFINANCE CALCULATORto determine if you have enough equity in your home to pay off your existing mortgage and solar company loan
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. For example, if your property is valued at $100,000, the maximum mortgage amount you are eligible for is $80,000 ($80,000 (mortgage) / $100,000 (property value) = 80% LTV ratio). In addition to lender guidelines, please note that some states, such as Texas, apply state regulations to cash out refinances.
Option 2: Home Equity Loan or HELOC
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 -- such as if you already have a low mortgage 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. The lower HELOC or home equity loan amount also limits 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, 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 and to confirm your loan terms. 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.