This graph compares the three scenarios listed below in the context of the household having a $300,000 mortgage with an interest rate of 6%. The graph displays the total amount that's paid over the life of the loan, broken into the components of capital, interest, and electricity.
The electricity component is to reflect having to pay an additional amount for electricity coming from the grid in the scenario where solar panels weren't purchased.
$300k Mortgage (Control)
$300,000 Mortgage, paying $2,532 per month, which takes exactly 15 years to pay off (this is the 'control' data). This doesn't take into account electricity spend, it's just the mortgage with no external factors.
Total: $455,635 (52% over the amount borrowed)
$294,000 mortgage having put the $6,000 into the mortgage rather than spending it on solar, paying the same $2,532 per month which takes 15 years and 3 months to pay off. This means there's an extra $850 annual spend on electricity.
Total: $461,776 (57% over the amount borrowed)
$6,141 over the Control total and 3 months longer to pay it off.
$300k Mortgage + Solar
$6,000 spent on a Solar PV system, leaving the mortgage capital at $300,000. This means there's an extra $850 annual saving on electricity which gets put into the mortgage raising the monthly payment to $2,603 and paying it off in 14 years and 5 months.
Total: $448,120 (49% over the amount borrowed)
$7,515 below the Control total and paid off 7 months earlier.
In 15-odd years the solar option comes out $13,646 ahead. Not a small difference.
The analysis above is very clean and simple. The following variables will affect the outcome in the real world:
- Solar inverters have a warranty period of 10 years, so it's likely that during or soon after the mortgage period a new solar inverter would be required
- Solar panels generally have 25 year life expectancy, so it would be unlikely any panels would need replacing, but their efficiency slowly degrades over this time (the expectation is that they're still 80% as efficient as they were initially after 25 years, so the degradation is a very shallow curve)
- Electricity prices, as is the point of this website, tend to go up and so the annual savings from having solar will tend to go up, which will put the $300k Mortgage + Solar option further ahead
- Interest rates change. Increases in the interest rate will improve the $294k Mortgage case, whilst decreases will help the $300k Mortgage + Solar case
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Check my numbers yourself from where I got them:
I've ignored including putting $6,000 into an investment account into this comparison as it's a completely different scenario to having a mortgage. I have run the numbers though, and solar comes out ahead in the long term (12 or so years). I may dedicate a page to that comparison as well.