Refinance guide refinancing a mortgage with solar or PACE liens

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Refinancing a Mortgage with Solar or PACE Liens — What it Is and When It Makes Sense

Refinancing a mortgage with a solar or PACE lien on the property means replacing your existing mortgage with a new loan while the property still has an outstanding obligation tied to the solar system or a Property Assessed Clean Energy (PACE) assessment. Solar liens can come from a purchased system financed by a lender, or from a lease/Power Purchase Agreement (PPA). PACE liens are repaid through the property tax bill and are recorded against the property.

This move makes sense when you can lower your interest rate, shorten the term, remove mortgage insurance, or consolidate higher-cost solar financing into a single lower-rate mortgage — but only if the lien situation allows the refinance or the lien can be subordinated or paid off without negating the benefit of refinancing.

Benefits and Drawbacks

Benefits

  • Lower overall interest rate: Combining debts or switching to a lower-rate mortgage can reduce monthly payments and total interest.
  • Simplified payments: Rolling a solar loan into the mortgage or consolidating PACE-related costs can reduce the number of bills to manage.
  • Potential cash-out: If allowed, refinancing could free equity to pay off higher-cost solar debt or make other improvements.
  • Preserve ownership or system value: Paying a solar loan through refinance may remove a lien that complicates future sales.

Drawbacks

  • Lien priority issues: PACE liens are often senior to mortgages in many jurisdictions, which can block or complicate refinance approvals.
  • Higher closing costs or fees: Subordination, payoff, or administrative fees can reduce the financial advantage of refinancing.
  • Program restrictions: Many government-backed programs and investors (Fannie Mae, Freddie Mac, FHA/VA) impose specific rules about PACE and other liens that may limit refinance options.
  • Longer-term costs: Rolling short-term solar debt into a longer-term mortgage may lower payments but increase total interest paid over time.

Costs and Fees to Expect

Refinancing with a solar or PACE lien may involve these additional costs beyond typical refinance fees:

  • Payoff amount for existing solar loans or PACE assessments (may include interest and administrative charges).
  • Subordination agreements: Some lenders or PACE administrators charge a fee to subordinate their lien behind the new mortgage.
  • Title and recording fees: Because a new mortgage is recorded, title work must reflect and resolve existing liens.
  • Appraisal, origination, and closing costs for the refinance itself.
  • Prepayment penalties: Less common on solar loans but possible—check loan terms.

Step-by-Step Process

Follow this sequence to improve the chances of a smooth refinance:

  1. Gather records: Collect mortgage statements, solar loan/lease/PACE documentation, contracts, and any payoff terms.
  2. Order a title report or request it from your lender: Identify exact lien types, priority, amounts, and recorded dates.
  3. Talk to potential lenders early: Not all lenders or loan programs will accept properties with PACE or certain solar arrangements. Ask about their underwriting rules.
  4. Get payoff and subordination options: Contact the solar lender or PACE administrator to request payoff quotes and inquire whether subordination is possible and at what cost.
  5. Compare scenarios: Run numbers that include subordination fees or payoff amounts to confirm the refinance still benefits you.
  6. Underwrite and clear conditions: Provide the lender with title documentation, payoff statements, and any subordination agreements required for closing.
  7. Close the refinance: Pay required fees and ensure title company records satisfaction of paid liens or subordination language as agreed.
  8. Confirm post-closing: Verify that tax assessments, if applicable, and title records reflect the new mortgage and lien status correctly.

Common Pitfalls to Avoid

  • Assuming all lenders will accept PACE liens — many won’t, especially for conventional conforming loans unless the PACE lien is subordinate or addressed.
  • Failing to disclose leases or PPAs — a solar lease or PPA can complicate a lender’s ability to disburse funds or approve title insurance if the system is not owned outright.
  • Overlooking subordination costs or delays — obtaining a subordination agreement can take time and may carry meaningful fees.
  • Trying a cash-out refinance without confirming program rules — many agencies restrict cash-out on properties with certain assessment liens.
  • Ignoring long-term cost tradeoffs — rolling short-term solar debt into a 15–30 year mortgage may increase total interest even if monthly payments fall.

Short FAQ

Can I refinance if my home has a PACE lien?

Possibly, but it depends on the lender and loan program. Because PACE liens are typically recorded as property tax assessments and can be senior to the mortgage, some lenders and investors disallow refinancing unless the PACE lien is paid off or subordinated in a way acceptable to the new mortgage investor.

What is a subordination agreement and when is it needed?

A subordination agreement is a legal document where a lienholder agrees to take a lower priority position behind a new mortgage. It’s needed when a new lender requires first lien position but an existing solar or PACE lien currently has higher priority.

Does a solar lease or PPA affect refinancing?

Yes. A lease or PPA doesn’t create a mortgage lien, but it can limit the lender’s collateral rights and complicate title insurance and resale. Some lenders are unwilling to refinance unless the lease is assumable or buyout terms are provided.

Will refinancing pay off my solar loan automatically?

Only if you include the solar loan payoff in the refinance proceeds or provide funds at closing to satisfy that lien. If you don’t pay it off, the lien remains and must be acceptable to the new lender.

Final Tips

Start early: lien issues can add weeks to closing. Talk to lenders who have experience with PACE and solar financings, get clear payoff and subordination terms in writing, and run the numbers including all fees. Because rules vary by state, program, and investor, work with a title company or real estate attorney to confirm that the refinance will actually clear encumbrances and preserve the intended benefits.

META: refinancing mortgage solar PACE liens, PACE lien refinance, solar loan refinance guidance

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