Should I refinance my mortgage, rolling the cost of solar roofing into the loan?

[Breeze2003]

Hello. We recently had solar installed and of course we are making a payment on it. I have been hounded about refinancing our home, offering amazing amounts of money. Should I refi and use only enough of the "equity money" to pay off the solar, effectively rolling that cost into the house(I Think)? Mortgage is 3.5% for another 24 years and 2.2% on solar for 20yrs. Thanks

[Matthew Angel USAA]

Breeze2003,

Thanks for your question!  Your best course of action really relies on what you are trying to accomplish, so I'll give a couple of strategies for you to consider.

Goal - save the most money in interest payments

It sounds like you have a lower interest rate on the solar loan at 2.2%, so keeping things as is should save you on interest.  If you refinance the cost of the solar panels into a new home loan (assuming the new loan is at 3.5% or higher), it will wind up costing you more interest payments in the long run.  You are making payments on both the home and the solar in this scenario, and paying extra principal to the home note will speed this up.  If you are comfortably making payments now this is the option I'd lean your toward.

Goal - Pay off both home and solar loan debts as fast as possible

If you choose to refinance the home to a shorter term, say 15 years, and pay off the solar loan, you should be free of all the debt in 15 years.  15 year mortgage loans will carry a higher payment than you currently have, and you may or may not be able to replicate your current 3.5% mortgage rate.

Goal - Reduce monthly payments

Refinance the home and solar debt for 24 years or longer.  You are likely swapping a lower 2.2% interest rate on the solar loan for a higher rate on the new mortgage.  The upside to this option is you may be able to lower your overall monthly payment.  This option costs you the most in the long run, because you are paying less monthly and racking up more interest costs.  You also need to weigh the impact other financial goals like retirement.  Many people in their 40s and 50s don't think about how still paying on a home (plus the solar debt) 25 years or more out might limit their ability to retire or do other financial goals.

A final couple notes of caution.  Refinancing typically isn't free, so its important to take those closing costs into account as a part of your thinking.  Also, it can be tempting to "take a little extra money" when refinancing.  Remember that any extra you take can cost you a great deal over the life of the loan.

I hope this helps!  Be sure to check out our Home Learning Center for advice and tips on refinancing and other home topics.