What is the best way to finance energy efficient systems? (solar, EV chargers, heat pump hot water systems)
My depiction of a Green Worrier Goddess - a picture that I took on the streets of Melbourne.
As inflation spirals out of control - from electricity, to food to petrol - it would be great to have the peace of mind that your energy bill would be low and constant.
It seems like installing energy efficient products such as solar, electric vehicle charging stations or heat pump hot water systems would be an absolute no brainer except for one small catch - the upfront cost.
A decent size solar system can cost north of 10K. That is a big chunk of cash to find – especially when all our other expenses have literally gone through the roof.
There are many options so as not to fork out the cash – 0-1% finance offer, personal loans, green loans, lease and PPA’s. When interest rates were at the 2% level, multiple options were feasible however with the current interest rate environment, the decision needs to be considered much more carefully.
So, what is the best way to finance those ‘green products’?
0-1% Finance Offer - Beware!
Typically, the deal is phrased as:" Paying off your solar panels will not cost you any more than your monthly electricity bill because the finance comes at 0% or 1%."
In current environment, no finance comes at 0-1%. Essentially, what they do is provide you with an inferior quality system and hike up the price by 15-25% to cover the cost of the finance.
The first rule of finance is if it looks too good to be true, it probably is. The cost of all finance is determined by risk. If there has been no risk assessment (using the factors such as credit score, previous defaults, employment stability), you are assumed to be the highest risk and are charged the highest rate.
You are better off finding another provider and financing it yourself.
Green Loans
Many banks have increased their commitment to the environment by offering discounted interest rates to the purchases of energy efficient products such as solar panels, battery packs and energy efficient hot water systems.
Green Personal Loan (unsecured):
Green loans can be structured similarly to a personal loan but with a significantly lower interest rates. The payment period can range from 1 to 7 years and they can be set up with low to no initial fees, ongoing fees or penalties for early repayments.
You can expect an interest rate of 6.5% -7.5%.
Green Loan secured against your home:
If the green loan is then combined with your home loan and secured against your home.
The interest rate can drop to as low as 3.99%.
Green Home Loans
An even better option is a Green Home Loan - a lower rate which is applicable to your whole home loan and not just the portion used to finance the green additions. You can save $1,000s each year on your mortgage.
It is also important to note that while green loans are an excellent option to finance your energy efficient purchases, they do come with several conditions. For example, solar: the size of the system has to be adequate for your home, the installer has to be certified by the Clean Energy Council of Australia and you need to have a good credit score.
You can receive up to a 1% discount on your mortgage with a green home loan.
Personal Loan or Addition to your Mortgage
If you are unable to get a green home loan, the next best option is to get a personal loan or add the cost to your current mortgage.
A personal loan is unsecured: therefore, it comes with a higher interest rate and shorter loan term whereas an addition to your mortgage is secured against your home therefore it has a lower interest rate and longer loan term.
The actual interest rate offered depends on multiple criteria such as your credit rating, loan to value ratio, assets, liabilities and structure of your income.
Rent to Own
Rent-to-own solar leasing means you can pay off your solar system in fixed monthly instalments and take on full ownership at the end of the solar lease agreement.
Similarly to buy now pay later schemes, the friendly salesperson will typically offer you a monthly fee which is less than your current electricity bill. It sounds great but you are typically charged a much higher rate of interest than you could get if you organised your own financing.
Also be aware that the system cannot actually be removed so if you move you will be required to payout the remaining cost of the contract.
Rent to own is more effective for commercial premises with larger systems.
Power Purchase Agreement
A Solar PPA is an agreement that enables you to install and use the energy from a solar system on your premises – without the capital outlay. Typically, they would offer you the energy at a discounted rate from what you would typically pay for energy off the grid such as 30c per kilowatt-hour as opposed to 40c.
This would be a brilliant way to get the solar except that you are usually obliged to pay a set minimum amount regardless of whether you use it or not which means that you could be paying for energy that you don’t need.
Similarly, to rent to own PPA’s are only really suitable for commercial premises.
What is the Best Solution?
Ultimately, the best value and most accessible solution for you depends on your personal circumstances.
Click on the link below to get a free personalised comparison.
(Include Free Personalised Comparison in your subject line)
Warm Regards
Marisa
Marisa Hoffenberg, m:0416538227, marisa@sustainablehomeloans.com.au