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 One 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 One 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 of it covers 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!