Many homeowners dream of having their own swimming pools, especially after the heat of summer settles in. But after checking the price tag, a lot of would-be pool owners give up before they start.
It doesn’t have to be that way.
With the appropriate financing, an in-ground pool may be more affordable than you might think, while also bringing years of enjoyment and adding to your home’s value.
There are three good options to finance a swimming pool: home equity loans (HEL), home equity lines of credit (HELOC), and cash-out refinance mortgages.
How Much Pool Can You Afford?
According to HomeAdvisor.com, an average pool installation costs $25,224 with a typical range between $12,985 to $37,731 — this includes both above-ground and in-ground pools.
The type of pool you choose can drastically affect the overall costs. In-ground pools, for example, can be quite expensive, ranging from $35,000 to $65,000 (or $50 to $125 per square foot minus add-ons and upgrades). While above-ground pools range from $1,500 to $15,000.
In-ground pools tend to add more home value than above-ground pools because they’re generally considered more aesthetically pleasing.
How much you’ll spend also depends on the pool’s size and shape, the construction materials (concrete, fiberglass, or vinyl), the installation costs, and any “extras” like a hot tub, slide, diving board, etc. Also, keep in mind, that many homeowner’s insurance policies and local municipalities require fencing around pools to protect children and pets from falling in, which can increase costs.
In-ground Pool Installation & Construction Cost Breakdown
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You’ll also need to factor in ongoing maintenance as well as the increased utility costs, which can range between $500 to $4,000 per year depending on what type of pool you purchase. Over a 10-year period, those costs can range from around $4,000 up to over $40,000.
The Best Financing Options for Swimming Pools
Once you determine how much pool you can afford, it’s time to think about what financing option is right for you.
You may have seen some financial institutions offer unsecured “pool loans” (aka personal loans), but these often come with much higher interest rates than for secured loans (aka mortgage loans). Because unsecured loans are riskier for lenders, the maximum amounts are often modest — too modest to cover the costs of many in-ground pools.
There are three financing options that are your best bets — home equity loans, home equity lines of credit, and cash-out refinances. All are secured loans with their own pros and cons and the best choice will depend on your situation.
For example, if you currently have a low interest rate, than you’ll likely not want a cash-out refinance as they typically come with higher interest rates than home equity loans or home equity lines of credit. If you need a lump sum of cash and want to maintain the interest rate on your current mortgage, then a home equity loan may be a better choice.
Whatever you decide, avoid financing your swimming pool with credit cards — doing that dramatically increases the odds that you’ll end up over your head.
Home Equity Loans
Also known as a “second mortgage,” a home equity loan provides you with a lump sum at a fixed-interest rate, which you typically have to repay in 10 to 15 years. You may have fees associated with the new loan, but this varies by lender. If there are costs, they’re generally lower than those for a cash-out refinance.
The benefits of a home equity loan are:
- Interest rates are often always lower than those for personal loans
- The interest may be tax deductible. (According to the new IRS rules, if the loan is used to “buy, build or substantially improve the taxpayer’s home that secures the loan,” then the interest can be deducted. Consult with a tax professional to confirm.)
The downside of a home equity loan is that you have to borrow — and pay interest on — that lump sum instead of borrowing smaller, incremental sums as needed. For that, you’ll want a home equity line of credit.
Home Equity Lines of Credit
A home equity line of credit (HELOC) is a revolving line of credit that lets you borrow against your home. It works like a secured credit card, but instead of depositing a required sum into a bank account for use as collateral, the lender uses your home as collateral.
The lender uses your home’s appraised value (minus what you still owe on the mortgage) as well as other factors like your credit history, debt, and income to determine your credit limit.
Once you’re approved for a HELOC, you’ll receive a set of blank checks or a credit card to use for withdrawing funds. The advantage with a HELOC is that you can withdraw only the money you need — as you need it — to pay for the pool, fence, installation, etc. This helps minimize the interest that’s accruing at any given time. You only need to make the minimum payments each month.
HELOCs usually have variable interest rates, though some lenders will convert HELOCs to a fixed rate for all or part of the balance. Ask you lender if they can do this and under what circumstances.
One disadvantage of the HELOC is the fees associated with the loan. You should expect to pay for a new property appraisal, an application fee, and closing costs associated with the new loan. Comparison shopping with multiple lenders may help keep these costs down.
A cash-out refinance (sometimes called a cash-back refinance) involves taking out a new mortgage for more than the current outstanding balance. The difference between the new and old loans goes to you as cash.
For example, if you need $30,000 for a pool, but still owe $100,000 on a $200,000 house, you can refinance the mortgage for $130,000 and use the extra $30,000 to purchase the pool.
You can also refinance into a lower interest rate than your current mortgage, which may save you money in the long run. But, if you currently have a low rate, then this may not be the best choice. In general, this type of loan usually carries a higher interest rate than either a home equity loan or HELOC. Though, like a home equity loan interest rates are fixed.
The higher interest rates are due in part to lenders viewing these loans as a bigger risk. In the lending world, bigger risk equals higher rates. It also means that the criteria for qualifying tend to be stricter too.
Like the home equity loan and the HELOC, the interest paid on a cash-back refinance may be tax deductible for home improvements.
There are closing costs associated with cash-out refinancing loans that can range from a few hundred to a few thousand dollars, which is generally higher than those for a home equity loan.