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The Federal Reserve has lowered interest rates, and while it's meant to support the broader economy, here's a way to help homeowners go solar.
Last week, the Fed cut interest rates by half a point, lowering the benchmark lending rate to 4.75-5.25%. A few years ago, high interest rates meant that financing a solar system was more expensive, pushing the breaking point for solar investors. Many homeowners and business owners are reluctant to get involved.
But now, the Fed's September rate cut — combined with lower input costs — makes going solar even more attractive. Homeowners will see a faster return on their solar investment compared to last year. According to the EnergySage blog, this 50-point reduction means that a $30,000 home solar system would cost about $3,000 less over the course of a 20-year loan, due to reduced interest payments.
Even though solar is a solid investment in any interest rate environment, the low rates make the math even better. As Spencer Fields, director of information at EnergySage, puts it: “These rate cuts will save solar consumers thousands of dollars in interest over the lifetime of their solar panels. Most solar adopters are financing their system with loans, so lower interest rates will help make solar more affordable and likely increase demand for new commercial and residential installations.
How do low interest rates make rooftop solar cheaper?
Your solar savings depend on several factors, including local electricity rates, how you use the energy, and state policies such as net metering. But if you're financing your system with credit, the interest rate is an important part of the equation.
As with a loan, the lower the interest rate, the less you pay over time. The average home solar panel system costs about $30,000, and according to EnergySage, 85% of homeowners finance their own solar system. 4.75% interest on a $30,000, 20-year loan will cost you about $16,500 in interest. At an interest rate of 5.50%, that loan jumps to $19,500 in interest. That's a $3,000 difference from the Fed's rate cut.
And if you can pay off your loan in less than 10 years, the combination of amortization and early repayment can save you up to $10,000 in interest on a 20-year loan.
It is also important to consider the full cost of the loan. Fees and other charges may vary depending on your lender. That's why it's important to look at the Annual Percentage Rate (APR), not just the interest, as the APR gives you the full picture of your costs.
Fast solar payback time
Solar isn't just a green option – it's a smart financial move. Most homeowners pay off their solar loans in less than 10 years, meaning everything after that is pure savings. If you lock in a lower interest rate, you'll reach that repayment period much faster.
EnergySage reports that the average homeowner using its Marketplace pays off a solar loan in less than 10 years, even if they take out a 20-year loan. If prices are lower, you'll be able to reach that milestone sooner and save more in the long run.
Should you wait for interest rates to drop significantly?
There is a lot of talk about the Fed cutting rates again at the end of the year and possibly more in 2025. But trying to time interest rate changes can be as tricky as timing the stock market. While the Fed has hinted at future rate cuts, nothing is set in stone. If inflation changes or the job market takes an unexpected turn, the Fed can adjust its course. So while it's tempting to wait, there's no guarantee that prices will keep going down.
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If you live in an area with frequent natural events, and are interested in making your home more resilient to power outages, consider going solar and adding a battery storage system. To make sure you find a reliable, trustworthy solar installer near you who offers you competitive prices, check EnergySagea free service that makes it easy for you to travel in the sun. They have thousands of pre-tested solar installers competing for your business, ensuring you get high quality solutions and save 20-30% compared to going it alone. Also, it's free to use and you won't get any auction calls until you choose an installer and share your phone number with them.
Your personalized solar quotes are easy to compare online and you'll get access to impartial Energy Advisors to help you every step of the way. Get started here. -Reliable reliable link*
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