Home Equity Loan or Home Equity Line of Credit for a Solar Panel upgrade, or neither?

HEL – the Home Equity Loan offers a fixed loan and payment, some go all the way to 20 years out, so the advantages are:
1) Low (relatively) payment.
2) Usually a fixed rate and payment.
3) know that you are paying down principal and can budget for it.   This also makes total cost of solar easy to calculate.
4) 100% financing of project if you have the equity in your home (usually only can go up to 90% of value of your home).
5) currently could be tax deductible

HEL disadvantages –
1) 20 years may outlast solar project, or at least its maintenance life!
2) adding a second mortgage eats into your equity, an argument could be made that its adding value, but you don’t know if thats true.

HELOC – the home equity line of credit is known for its flexibility and is the most popular loan product for tapping equity, however it is usually variable rate, so its fraught with hazards!

HELOC advantages are:
1) lowest payment possible of interest only.
2) variable payment, depends on balance times current interest rate (like a credit card)
3) easy to “float” the balance and never paydown principal in the first 10 years (typical length of a heloc)
4) can also finance up to equity line

HELOC Disadvantages:
1)  The variable rate is a killer, there is no way to know what total cost of project is because you can’t predict future rates or how fast principal will be paid down.
2) The variable payment of interest only is another killer.  I have sat across from nearly every single person over the years who has said they are going to pay this off and my guess would be 10-20% actually did it.  Most wind up refinancing again to combine their 1st and 2nd later.
3) A HELOC definitely could delay paying off project and therefore extend payments past the usable life of the solar panels.  It is critical in lending that the object, for example a car, have a term loan that matches the maintenance life of the vehicle (how long its going to last until its too expensive to repair or maintain).  A HELOC puts that decision in the customers hands rather than the lenders and its very easy to then have a debt past the time you sold the car or it broke down.  The same would be true of solar panels, the maintenance life (10-20 years I would imagine) could easily be exceeded by paying interest only for 10 years and then going right back in and refinancing for 30 years, or for 20 more years for instance.
4) The equity you took from the home in the HELOC is not getting returned to you if you make interest only payments.   The argument could be made that it is appreciating, but it is doubtful that it is appreciating so fast that it makes up for interest only payments.

Alternative?
My strongest recommendation to keep the mortgage deduction and to make the financing make sense (the home improvement of solar panels is adding to the value of the home and the home pays for it), is a 1st mortgage renovation loan!  This is fixed rate, allows for the FUTURE value of the home, after renovations.  Therefore you get all the advantages of a HEL with one low payment (like adding a little over the Heloc payment onto your first mortgage).  Please don’t discount the advantage of not having two mortgage payments (with double the risk of being late and two to worry about).
I would be happy to help: Corey Vandenberg