Loans: Escalator Loans

Note: Escalator loans are currently in beta. Please reach out to your Account Manager for beta access.

Escalator loans are financing products where the homeowner’s loan payment increases by a fixed percentage each year instead of remaining constant for the entire loan term.

This structure allows the loan to begin with a lower initial payment, with payments gradually increasing annually over the life of the loan.

Aurora allows account admins to create Escalator loans as custom financing products so that proposals accurately reflect these payment structures.

In this article, we’ll cover:

• How escalator loans work
• Creating an escalator loan
• Payment modeling
• Proposal presentation

How escalator loans work

In an escalator loan, the borrower makes payments that increase annually by a fixed escalation percentage.

Unlike a standard mortgage-style loan where payments remain fixed, escalator loans:

• Start with a lower initial payment
• Increase payments each year by a fixed escalation rate
• Continue until the loan term is complete

The escalation percentage applies to the loan payment, not the interest rate.

Example

If a loan starts with a payment of $100/month and has a 2% annual escalation, the payments would increase as follows:

• Year 1: $100/month
• Year 2: $102/month
• Year 3: $104.04/month

Aurora automatically calculates these annual increases when modeling the financing product.

Creating an escalator loan

To create an escalator loan in Aurora:

1. Go to the Database tab in the left navigation menu
2. Select Financing products
3. Click Add Financing Product
4. Enter a name for the financing product
5. Click Add

Once the financing product is created:

1. Click Add Loan
2. Fill out the required loan parameters:
   1. Name - name of the loan option
   2. Principal - the percentage of the system cost financed
   3. Dealer fee - dealer fee associated with the financing option
   4. Add dealer fee to system cost - optional setting to include dealer fee in the system cost
   5. Interest is tax deductible? - indicates whether the loan interest is tax deductible
   6. Loan type - select “Graduated payment (escalating)”
   7. Interest rate - annual interest rate provided by the financing provider
   8. Duration - length of the loan term (in months)
   9. Annual escalation rate - the annual percentage by which the homeowner’s payment increases
   10. Loan can have prepayment - allows a percentage of the loan balance to be paid down in a specified month, reducing the remaining monthly loan payments
3. Click Save

Payment modeling

Aurora automatically models escalator loans using the following structure:

• Payment begins at the initial calculated monthly payment
• Each year, the payment increases by the configured escalation percentage
• Payment terms are displayed annually in the financing schedule

These payment changes are reflected throughout Aurora’s financial modeling, including:

• Savings calculations
• Cash flow analysis
• Financing comparisons

Proposal presentation

When an escalator loan is included in the proposal:

• Payment increases are reflected in financial charts and graphs
• The proposal presentation shows the annual payment schedule
• Homeowners can clearly see how their payment changes over time

Aurora automatically updates all relevant financial widgets and projections to reflect the escalated payments.