In March 2016, we added 3 new easy-to-use loan calculations to the MODsolar Platform: a simple loan, a loan with a delayed start to the payments, and a loan with interest-only payments during an initial period.
Later, we added (to each of these loan types) the option to finance the “year 1 incentives” (notably the FITC — federal income tax credit — but also any incentive that is realized in the first year after installation).
This week we added yet another enhancement. When the year 1 incentives are financed (i.e., included in the loan principal, and therefore impacting the monthly payments and the amount of interest that is paid), it is possible to specify a month in which the consumer will make a “balloon payment” equal to the amount of the year 1 incentives, after which the loan is re-amortized based on the remaining principal balance due.
For example, suppose the net cost of the solar system is $10,000, and the only incentive (of any kind) is the FITC — 30% of the system cost. Thus, the consumer will receive a tax credit of $3,000 for the year in which the system is installed. Such a consumer could, of course, finance $7,000, and dip into savings for the $3,000 (or borrow it from a relative) in order to pay the full $10,000 to the installer. But some financing programs allow the consumer to finance the full $10,000 and then make a $3,000 balloon payment at some point — for example, in month 12 of the loan (which would surely be after the tax credit has been realized, likely resulting in a tax refund to the consumer). After the balloon payment has been applied to the loan, the lender then re-amortizes the remaining balance of the loan, for the remaining term.
Suppose in our example that the financing program for this $10,000 is a 7-year (84-month) loan, at 5% interest. This would require a monthly payment of $141.34. That would be the payment for each of the first 11 months. Then in month 12, the consumer would pay the regular payment of $141.34, PLUS the $3,000 (the amount of the FITC). At that point, the remaining balance would be $5,776.14. (REMEMBER: the $141.34 monthly payment does not all go to the principal; each month, a portion is interest, and the rest goes to the principal.) The $5,776.14 balance is then re-amortized at 5% over the remaining 72 months, yielding a monthly payment of $93.02.
Within the MODsolar Platform, you can easily specify the input choices and see the calculated results instantly; for the example above, it would look like this:
With these new loan types, and the new options to finance the FITC and re-amortize, it is possible to model a variety of financing products that are available for residential and commercial solar projects.
If you have any questions, feel free to contact MODsolar Client Services. And, if you have a need to model any other types of financing, let us know — we are always looking for ways to improve the Platform!