How to finance a solar power system for your home

Solar power systems for your home can be a good way to minimise the environmental impact of your household, and could reduce your power bill over time. But how do you finance one?

You’ve probably seen the ads on TV - solar panels and power is all the rage at the moment. And for good reason. Despite the often hefty upfront cost of solar panels, they could pay off in the long run, and you could end up producing more power than your home uses, allowing you to sell the electricity back to the grid, called a feed-in tariff. Read on to find out more about the benefits of solar panels, and how to finance them.

Benefits of solar panels

As mentioned earlier, one of the benefits of solar panels is that you could see a reduction in your power bill over time. Just how fast that is depends on your household use, the price you paid for your panels and the price of electricity per kilowatt hour (kWh), along with any supply charges.

• The national cost of solar panels, according to Solar Choice, is approximately $5,000 for a 5kW system. A 5kW system could theoretically power a home that uses 20kWh of electricity per day.

• Alinta Energy estimates a four-person home in Queensland uses about 17kWh per day.

• The Federal Government’s ‘Small-scale Technology Certificate’ can also offer discounts on solar panels, but this depends on your panel capacity and location.

If your solar panels create more power than your home uses, you can sell this back to the electricity grid, which is called a feed-in tariff. Many power companies offer this, and State Governments could offer additional bonus schemes if your panels qualify.

• For example, energy company Powershop’s feed-in tariff for the Brisbane metro area is 9.5c/kWh.

• Add the Queensland Government Solar Bonus Scheme for qualified panels of 44c/kWh, and you’re looking at a total feed-in tariff of 53.5c/kWh.

Investing in a battery could also be worthwhile. Batteries provide reliable power, as they store the power generated to use at a later date - perhaps when it’s raining. Batteries on the market can store anywhere from around 3kWh to upwards of 13kWh, and cost anywhere from about $4,000 to more than $10,000. It’s estimated that it could take anywhere from two to seven years to break even on the investment in solar panels, and more if you invest in a solar battery.

However, keep in mind the term ‘investment’. There could be a more implicit benefit to solar panels - your home’s value. Powershop estimates that a 5kW solar panel installation could add around $29,000 to the value of your home. If solar panels sound like a good option, there are numerous ways you can finance them if the upfront cost looks a little frightening.

Ways to finance a solar power system

There are quite a few ways to finance installing solar panels on your home. Aside from a potentially risky personal loan, or solar leasing agreements, financing can be done by using your home loan to your advantage. Some methods could be:

Using a home equity loan

Home equity is the difference between what you owe on your mortgage, and what your home is worth. This is generally contingent on your home increasing in value.

If you currently have an existing home loan with loans.com.au, you can access your home’s equity through a top-up loan. A top-up loan is an increase in your existing home loan, where you are lent more money secured against your home.

Login to your Smart Money account and through the messages section, you can get in touch with one of our sales managers about topping up your loan.

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Refinancing your home loan

Another option is to refinance your home loan at a higher amount that accounts for the solar panels' purchase. By using the extra funds, you could over time build up more equity if solar panels add more value to your home. loans.com.au offers super low rates that can save you money over time.

Using your offset sub-account

Without having to refinance or use a home equity loan, the third option is to consider your home loan’s offset sub-account if it has one. If you’re ahead on your monthly repayments, you could then withdraw those extra repayments you’ve made to fund the cost of your solar panels.

There are also some tax benefits by piling extra savings into an offset sub-account, versus using a savings account. Savings accounts are taxed as income, while contributing extra payments into an offset sub-account can reduce the interest paid over the life of the loan, which could leave you better off. Of course, this all depends on your own personal financial situation, your income tax rate, and interest rates attached to both savings accounts and your mortgage.

loans.com.au’s offset sub-account is 100% offset, which means it takes into account all of your money in the offset sub-account - some lenders may only account for a portion of it. At loans.com.au, you get the flexibility of accessing your offset sub-account 24/7 by using our Smart Money app and an unlimited number of withdrawals with your offset sub-account.

Other helpful resources: 

Ways to fund your home renovation project

How do construction loans work?

Green Home Loan