Path-Q Solar
How should I compare the return from solar with using the same money to pay down my mortgage?
Answer
Compare the after-tax, risk-adjusted lifetime benefit of solar with the effective guaranteed interest savings from mortgage prepayment. Include the solar system's net cost, bill savings, degradation, maintenance, financing or opportunity cost, resale effects, and the value of keeping cash liquid.
Key points
- Mortgage prepayment generally provides a return related to avoided interest, subject to the loan's terms and tax treatment.
- Solar returns are uncertain because production, utility prices, export value, equipment performance, and ownership period can vary.
- Use the same time horizon and discount-rate method for both choices.
- Consider whether mortgage prepayment reduces liquidity or whether solar can be funded without affecting emergency reserves.
What it depends on
- Mortgage interest rate, term, repayment rules, and tax treatment
- Net solar cost and ownership structure
- Expected production and bill savings
- Expected time in the property
- Alternative investment return and liquidity needs
Risks and trade-offs
- Solar may have a higher modeled return but more uncertainty than guaranteed mortgage interest savings.
- A solar investment can be difficult to reverse, while cash used for mortgage reduction may be less liquid.
- Resale before payback can reduce the realized solar return.
Information you may need
- Mortgage balance, interest rate, remaining term, and prepayment conditions
- Net solar purchase cost and production estimate
- Bill and export assumptions
- Expected ownership period and liquidity requirements
Your next step
What to do next
Build a side-by-side after-tax cash-flow comparison using conservative, expected, and downside solar cases against mortgage prepayment.
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