When summer starts to swelter, many homeowners dream of swimming in their very own swimming pools. But after checking price tags, a lot of would-be pool owners give up before they start.
It doesn’t have to be that way.
With appropriate financing, you might easily afford an in-ground pool that will bring years of enjoyment – and even add to your home’s value.
Home Equity Loans (HEL), Home Equity Lines of Credit (HELOC) and Cash-Back Mortgage Refinancing are three good ways to finance a swimming pool.
Study the pros and cons of each loan type – and don’t dive off the financial “deep end” by purchasing something too expensive – and the water should be fine.
How Much Pool Can You Afford?
In-ground pools can be quite expensive.
According to HomeAdvisor.com, most homeowners spend between $31,450 and $50,894 on an in-ground pool, with an average reported cost of $40,923.
How much you spend will depend on the pool’s size and shape, the construction materials (concrete, fiberglass or vinyl), the installation costs, and any “extras” (a hot tub, slide, diving board, deck, landscaping, etc.) that you tack on.
You’ll also need to buy fencing to prevent children and pets from falling into the pool. This is almost always required by homeowner’s insurance policies and local municipalities.
Also, you need to factor in maintenance costs, such as water treatment chemicals.
Over a 10-year period, typical maintenance costs can range from around $3,000 up to over $27,000, depending on what type of pool you purchase.
The Best Financing Options
After deciding how much pool you want and can afford, it’s time to think about financing.
Though some financial institutions actually offer unsecured “pool loans” (aka, personal loans), these often come with high interest rates – much higher than the rates for secured 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.
That leaves these three financing options as your best bets:
Home Equity Loans
Also known as “second mortgages,” a HEL provides you with a lump sum at a fixed interest rate, which you typically have to repay in 10 to 15 years.
The big benefits of a HEL are:
- Interest rates are almost always lower than those for personal loans
- The interest may be tax-deductible
The downside of a HEL is that you have to borrow – and pay interest on – that lump sum instead of borrowing smaller, incremental sums as needed, which is a big advantage of the HELOC.
Home Equity Lines of Credit
A HELOC is a revolving line of credit that lets you borrow against your home. If you want, you only need to make the minimum payments each month.
Basically, a HELOC 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 the collateral.
The lender uses your home’s appraised value (minus what you still owe on the mortgage) as well as other factors like credit history, debt and income, to determine your credit limit.
Once you’re approved for a HELOC, you receive a set of blank checks or a credit card to use for withdrawing funds.
As with a HEL, the interest on your HELOC may be tax deductible.
The advantage here is that you can withdraw only the money you need – as you need it – to pay for the pool, fence, installation and maintenance. This helps minimize the interest that’s accruing at any given time.
Though HELOCs usually have variable interest rates, some lenders will convert HELOCs to a fixed rate for all or part of the balance. Ask your lender if they can do this – and under what conditions they’ll do it.
A disadvantage of the HELOC is the fees associated with the loan. You should expect to pay for a new property appraisal, application fee, and closing costs associated with the new loan.
Doing some comparison shopping may help to keep these costs down.
A cash-out or cash-back refinance involves taking out a new mortgage for more than the current outstanding balance. You then pocket the difference between the new and old loans.
For example, if you need $30,000 for the pool, but still owe $100,000 on a $200,000 house, you can refinance the mortgage for $130,000, using the extra $30,000 to purchase the pool.
If possible, you can also refinance at a lower interest rate than the one on your current mortgage to save some money in the process.
Like the HEL and HELOC, the interest on a cash-back refinance may be tax deductible for home improvements. And like the HEL, the interest rate is fixed.
However, there are closing costs associated with Cash-Back Refinancing, ranging anywhere from a few hundred dollars to a few thousand.
Also, this type of loan usually carriers a higher interest rate than either the HEL or HELOC.
And because the default rate for Cash-Back Refinances is higher than for other mortgage types, the criteria for qualifying tend to be stricter.
Whatever you do, avoid financing your swimming pool with credit cards. Doing that dramatically increases the odds that you’ll end up over your head.