In recent years, solar loans have become a popular way to finance solar panel installations. While there are a number of loan options to consider, each with varying qualities, the majority of solar loan products share the trait of having fixed interest rates, monthly payments, and terms. If you’re looking for a solar loan option that allows you to adjust your monthly payment down the line, keep an eye out for re-amortization options.
What is re-amortization?
You may have heard of an amortized loan before, as many common loan types (car, home, educational, etc.) fall into this bucket. With an amortized loan, you have both a fixed repayment term and monthly payment. As you continue to pay your monthly dues, the money is split between the principal amount financed and interest rate payments that you owe. Because your interest payments will change based on what’s remaining of your principal loan amount, the amount allocated to interest payments versus principal will change each month even though your fixed monthly payment remains the same. With amortized loans, you can make early payments and reduce what you owe overall, but your required monthly payment amount remains the same for however long it takes to pay off the loan entirely.
When your loan has a re-amortization option, there’s one important distinction compared to traditional amortized loans: you have the opportunity to pay down your loan with a significant lump sum and change your monthly payments for the rest of your repayment term. For example, Eileen may pay a monthly payment of $200 on her 10-year loan, but after paying a lump sum of $10,000 after her first year, re-amortization occurs and she only needs to pay $96 a month for the remaining nine years of repayment.
Re-amortization calculations can be complicated, as your new monthly payment will depend on how many months are remaining in your term, your remaining principal balance, and your interest rate. However, there are many free amortization calculators online that you can use to input your remaining principal loan amount, interest rate, and the number of monthly payments left to calculate your potential monthly loan post-lump sum payment.
Advantages of solar loans with re-amortization opportunities
One reason re-amortization is popular among solar lenders is because of the federal investment tax credit (ITC) currently available for solar installations. With this incentive, you can claim 30 percent of the cost of your solar panel system as a credit when you’re filing your taxes.
If you go solar early in the year, you won’t realize the benefit of tax credits for a few months because you have to wait until you file your tax return to claim the incentive. So, if your solar loan has a re-amortization option, you can pay off some of your principal loan balance with what you later reap as a tax credit, thereby lowering your monthly loan payment. Plus, if the combination on your monthly loan payment and electric bill is lower than your electric bill prior to going solar, you’ll see savings from the get-go.
Many solar loans that include re-amortization options are unsecured. When a loan is unsecured, it doesn’t require a lien on your property. As an added bonus, the approval process for unsecured loans tends to be quicker than secured loan alternatives.
Can re-amortization result in higher monthly payments?
Remember to read the fine print of solar loan documents before signing. A few solar loan financiers offer the reverse of what’s described above: you start with lower monthly payments and if you don’t pay off a set portion of your loan by a specific date, your monthly payments can increase. If this is the case, confirm with a tax advisor that you can claim the full ITC credit in your first year so that you can use that credit to pay down your loan and avoid higher monthly payments.
Considerations with solar loan re-amortization
Solar financiers and their loan options are unique, and one re-amortization option may not have the exact same terms as another.
For one, while many solar loans financiers allow you to re-amortize once for free, others may require an additional processing and administrative fee. Additionally, your solar loan may require a minimum payment amount in order to re-amortize (i.e. you must pay a lump sum of at least $10,000 in order to re-calculate your monthly loan payment.) Some solar loans may have a set time frame in which you have the opportunity to re-amortize your loan – if this restriction exists, it’s typically by month 18 as financiers assume you will have filed for taxes within this timeframe, thus realizing the benefit of the federal ITC.
It’s important to read all loan documents thoroughly before signing, whether you’re looking to re-amortize your loan in the future or not.
Find the best solar financing solution on EnergySage
Every solar installation is unique, and so are financing options and preferences. By joining the EnergySage Solar Marketplace, you can compare multiple solar quotes online for free. If you’re looking to compare solar loan options, simply note it in your account so that installers can upload loan proposals with their quote. If you’d prefer to start with a ballpark estimate of what it would cost to install solar on your property, try our Solar Calculator.
