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FYI I worked out the PACE loans details in CA (hero and Calfirst) and the cost vs. financial benefits are just not there compared to various 6.5% EE loans you can get. Any interest you deduct won't lower the effective APR enough to compete with 6.5%. The hero/calfirst have up-front closing costs of 4.99% and 6.4% respectively that raise the APR from the one listed on their sites. For example, the 6.75% interest on the 5 year loan is really 9.72 APR. On top of that the capitalized interest, although fair enough to require, is then rolled into the interest over the term making it more expensive. Also be prepared for a huge payment request from your escrow company down the road; it's happened to two of my friends. Once they get the tax assessment they may require a large deposit (it was 2k for one friend) to bring your account inline for the next disbursement.
If you are thinking about deducting the principal portion as well (after all, how are YOU supposed to know how much is interest vs. principal when they only give you one number on your county tax assessment, hint hint) you should tread carefully. I would venture most tax accountants won't go for that for solar improvements (keyword), never mind an auditor. I would not be shocked if it hits the news that the IRS issues a targeted audit sweep based on PACE loans; they can get all CA taxpapers who financed solar using a PACE loan with just a few clicks in an online database. Then audit to verify you are not deducting the principal.
In any case, if you decide to deduct it all, you'll have very little principal to deduct at the start of the loan. You'd get the majority of benefit near the end of the life of the loan.
But although the interest rate is not "affected by your credit rating" they will run a hard ding credit check on you to see if they will even approve it. Also my escrow agent stated the vast majority of hero assessments they process are cleared before/upon sale by demand of the home buyer or the agreed price is lowered. Thus if you move, "the payment is no longer your responsibility" benefit might be rare. Why? Because they would be double-paying for your home improvements: the solar (or whatever) already increased the value of your home in the sale price, but for a buyer to then pay the monthly payment debt for them in their escrow isn't fair. You also have the same issue with leased PV systems, a potential home buyer would say "my monthly payment will be X PLUS some other payment for solar?" forget it. Many people just don't have the intellect or emotional energy, during that time, to work through calculations of solar payments vs. an unknown amount of utility bill.
There are a couple reasons to choose the PACE loans over traditional, one being it won't show up on your credit report and affect future income/debt ratios. The second reason is they hold the check disbursement to the contractors until you give the final signoff at project completion.
It's a great concept and especially works if you have some equity in your home and no money and poor credit rating. But like financing offered for "no credit required and no cash out-of-pocket", it's rarely a good deal. If you have the credit rating go traditional loan or if you have a lot of home equity, consider an HE loan instead.
Thoughts?
If you are thinking about deducting the principal portion as well (after all, how are YOU supposed to know how much is interest vs. principal when they only give you one number on your county tax assessment, hint hint) you should tread carefully. I would venture most tax accountants won't go for that for solar improvements (keyword), never mind an auditor. I would not be shocked if it hits the news that the IRS issues a targeted audit sweep based on PACE loans; they can get all CA taxpapers who financed solar using a PACE loan with just a few clicks in an online database. Then audit to verify you are not deducting the principal.
In any case, if you decide to deduct it all, you'll have very little principal to deduct at the start of the loan. You'd get the majority of benefit near the end of the life of the loan.
But although the interest rate is not "affected by your credit rating" they will run a hard ding credit check on you to see if they will even approve it. Also my escrow agent stated the vast majority of hero assessments they process are cleared before/upon sale by demand of the home buyer or the agreed price is lowered. Thus if you move, "the payment is no longer your responsibility" benefit might be rare. Why? Because they would be double-paying for your home improvements: the solar (or whatever) already increased the value of your home in the sale price, but for a buyer to then pay the monthly payment debt for them in their escrow isn't fair. You also have the same issue with leased PV systems, a potential home buyer would say "my monthly payment will be X PLUS some other payment for solar?" forget it. Many people just don't have the intellect or emotional energy, during that time, to work through calculations of solar payments vs. an unknown amount of utility bill.
There are a couple reasons to choose the PACE loans over traditional, one being it won't show up on your credit report and affect future income/debt ratios. The second reason is they hold the check disbursement to the contractors until you give the final signoff at project completion.
It's a great concept and especially works if you have some equity in your home and no money and poor credit rating. But like financing offered for "no credit required and no cash out-of-pocket", it's rarely a good deal. If you have the credit rating go traditional loan or if you have a lot of home equity, consider an HE loan instead.
Thoughts?
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