If your electric bills are sky-high, you may have thought about having solar panels installed on your roof. Solar panels are popping up on roofs all across the country.
However, the cost of buying solar panels is pricey. So, are they worth the price? Here’s a closer look at the cost-effectiveness of solar panels and highlights of some important questions that will help you determine whether a solar energy system is the right choice for your home.
The dollars and cents of going solar
As of August 2022, Congress passed an extension, raising the tax credit to 30 percent for the installation of solar panels between 2022-2032. For example, if your solar panel system costs $18,000, your tax credit would be $5,400. Even factoring in the tax credit which helps, it’s still a lot of money to spend. Here are four options you can utilize to pay for your solar panel system.
If you can afford it, paying for your panels upfront will bring you the biggest return on your investment since, after the initial startup fees, your panels likely won’t cost you a penny. Depending on your system and your general energy consumption, your solar panels can reduce your electric bill by 70 to 100 percent. This means most systems will pay for themselves in five to seven years.
Solar leasing is available in about half the country. Like a car lease agreement, you’ll pay a monthly rent instead of an upfront fee for your panels. The leasing company will then install your panels and collect the federal tax credit, as well as any government incentives available in your state, on your behalf.
Leasing solar panels is generally not recommended for several reasons. For one, after the lease agreement is over, the company will either remove the panels or charge you full price for the privilege if you want to keep them. You also may end up saving less on your energy costs than you assumed since many leases contain an escalator clause, which increases lease payments by 3 percent a year.
If you’d rather not lease your panels, but you don’t have the cash available to pay for them upfront, you can take out a loan created just for the purpose of funding this purchase. A secured solar loan will use your home as collateral and offer tax-deductible interest, while an unsecured solar loan will likely have a higher interest rate. Make sure to do your due diligence on any fees associated with solar loans so you’re prepared.
Home Equity Line of Credit (HELOC)
Excluding cash, the most financially responsible way to finance your solar panel purchase is through a line of credit taken out against your home’s value, also known as a HELOC.
A HELOC is a revolving credit line that allows homeowners to borrow money against the equity of their home, for a specific time period. Since a HELOC is backed by a valuable asset (the borrower’s home), the HELOC is secured debt that generally has a lower interest rate than unsecured debt, like credit cards or personal loans. If you open a HELOC at Partner Colorado, you can easily access your funds with our Partner Colorado HELOC Visa® with Rewards and earn rewards with every purchase.
A HELOC works similarly to a credit card. Once you’ve been approved, you can borrow as much or as little as needed during the draw period. Some financial institutions will require a minimum on the initial draw, be sure to find out what that is. The draw period generally lasts five to 10 years. Once the draw period ends, the borrower has the choice to begin repaying the loan, or to refinance with new loan terms.
Are solar panels for you?
Ask yourself these questions before you make a decision.
- Which way does my roof slant? In the United States, south-facing roofs are the best recipients for solar energy. Next up is west-facing, and then east-facing roofs. North-facing roofs are the least desirable for solar.
- How much sunlight does my roof get each day? Are there obstructions, like neighboring homes, trees or hills that block the sun from reaching your roof? It’s best for sunlight to hit your panels for a minimum of five hours a day.
- How large is my roof? An average residential solar system will need 20 panels to receive sufficient sunlight, which comes to roughly 500 square feet of roof space.
- How old is my roof? It only makes sense to install your panels on a roof that has many more years of life left. Otherwise, you’ll need to pay to have the panels removed and then reinstalled when you replace your roof. Similarly, it’s not worth installing panels if you plan on moving out of your home within the next decade or so.
- How expensive is my electricity? The higher your local electricity rates, the more cost-effective your solar panels will be. You can determine the rate you pay per kilowatt hour by looking at your most recent energy bill.
- Are there any government incentives in Colorado? Aside from the federal tax credit mentioned above, many states offer their own incentives for going solar. You can check for any available state credits on the database of state incentives for renewables and efficiency.
If you can afford to pay for the panels or use a HELOC to fund the purchase, and all other factors are in your favor, it may be wise to go solar.