An escalator loan — labeled "Graduated payment (escalating)" in Aurora — is a loan structure where the homeowner's monthly payment increases by a fixed percentage each year rather than staying constant for the full loan term. This allows for a lower initial payment that gradually rises over the life of the loan.
In this article, we’ll cover:
How escalator loans work
The annual escalation percentage applies to the payment amount, not the interest rate. Each year, the monthly payment increases by the specified rate.
Example: A loan with a $100/month starting payment and a 2% annual escalation rate:
- Year 1: $100/month
- Year 2: $102/month
- Year 3: $104.04/month
How to create an escalator loan
- Go to Database > Financing products and click Add financing product.
- Enter a name, select a project type, and choose Loan. Click Add.
- Click Add Loan.
- Set Loan type to Graduated payment (escalating).
Configure the following fields:
- Name — The loan label in Sales Mode.
- Principal — Percentage of system cost financed.
- Flat fee — Optional fixed dollar amount added to the loan principal.
- Dealer fee — Lender fee as a percentage of the financed cost.
- Incentives apply to dealer fee — Enable to include the dealer fee in incentive and tax-basis calculations.
- Interest is tax deductible — Enable if applicable.
- Interest rate — Annual rate from your lender.
- Duration — Loan term in months.
- Annual escalation rate — The percentage by which monthly payments increase each year.
- Loan can have a prepayment — Toggle on to model an optional prepayment. Reveals two sub-fields: Amount (the percentage of the loan that will be paid off early, entered as % of financed amount) and Month (the month the prepayment is paid to the lender and the loan is reamortized).
- 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.