How to Finance a Pool

There’s no better way to spend a hot summer day with your family than lounging in your backyard pool. Unfortunately, installing an inground pool is expensive, and most homeowners can’t afford to pay for it in cash. If you don’t have the money available but still want to move forward with a backyard pool, what are your options? Can you finance a swimming pool? What kinds of financing are available for this type of project? The answer is yes – you have several financing options available to pay for your new swimming pool. Let’s take a look at the best options to consider.

How to Finance a Pool

Cash-Out Refinancing

The process of refinancing involves replacing your existing mortgage with a new one. It’s sometimes possible to renegotiate a lower interest rate or even reduce your monthly payments when refinancing. In addition, if you have built up a large enough amount of home equity, you can request cash back upon refinancing.

The cash from your refinance can be used for any purpose. Debt consolidation and home improvements are popular choices, and yes, this includes building a swimming pool.

Pros of Cash-Out Refinancing

Cash-out refinancing allows you to borrow up to 80% of the equity you have in your home. If you made a sizeable down payment on your home’s purchase or have been paying a mortgage for a long time, this could give you plenty of available cash to fund your swimming pool. Cash-out isn’t the only benefit of refinancing, however. Other benefits include:

  • Increasing or decreasing the term of your mortgage
  • Switching from a fixed-rate mortgage to an adjustable-rate one, or vice versa
  • Switching from one mortgage lender to another
  • Removing co-signors from your loan
  • Removing mortgage insurance that’s costing you extra money

Refinancing is ideal during periods of low interest rates, but it’s likely only a good option for homeowners who have significant equity built up.

Cons of Cash-Out Refinancing

While there are benefits to refinancing your home and taking a cash-out on the equity, there are drawbacks as well. Refinancing means you will have to go through the entire mortgage application process again and receive approval. Income information and credit scores will need to be provided, and they must qualify for the mortgage you’re applying for.

There are closing costs involved in refinancing, too. These can range from 2%-5% of your loan total, and borrowing from your equity increases your loan balance. This sometimes equals an increase in your monthly payment.

It’s important to remember that mortgages are considered “secured loans.” This means that if you are unable to make your payments, you risk foreclosure on your home. Ensure that cash-out refinancing on your home equity is a decision that won’t have long-term negative impacts on your finances.

Home Equity Line of Credit (HELOC) Financing

Home Equity Lines of Credit are lines of credit issued from your bank that are directly tied to your home’s equity. In essence, they function as a credit card. You are approved for a certain amount of money that you can access at any time through your ATM or online banking. If you don’t use it, you pay nothing. However, if you take out some of the money, you pay interest on the amount of money you took out.

Pros of Financing With a Home Equity Line of Credit

The most significant advantage of using a HELOC to finance your swimming pool is that your monthly payments are based only on how much you withdrew, rather than the whole amount. You only pay interest on the amount you borrow, and you can make payments at any time by depositing money back in the HELOC.

Most Home Equity Lines of Credit have a draw period of ten years. You will likely continue to have access to the capital long after you’ve paid for your backyard pool. Other HELOCs will remain as long as you own the home they are tied to. This will provide you with an easy option for financing projects in the future as well.

Speed and cost are the two most significant advantages of a Home Equity Line of Credit. Obtaining approval for a HELOC takes days or weeks rather than the months it can take for mortgage approval.

There’s very little documentation required in your application, and sometimes you can even skip a home appraisal. There are very few fees involved in setup instead of the necessary closing costs on a mortgage.

Cons of Financing With a Home Equity Line of Credit

The negative side of HELOC financing for your pool is that they often have variable interest rates. This is because your payments aren’t fixed like they are with a residential mortgage and you risk paying high interest rates at specific times depending on the market.

The Home Equity Line of Credit creates a type of “second mortgage” on your house, so it increases your overall debt balance. It can also make it difficult to refinance your home in the future as you will be carrying a higher mortgage balance. However, keep in mind that a HELOC is considered a secured debt, just like refinancing. So if you don’t make the payments, you won’t just lose your pool but your home too.

Home Equity Loan

Home equity loans are classified as a second mortgage, much like a HELOC. Home equity loans allow you to tap into the equity you’ve accumulated in your home and borrow cash against that value.

Pros of Home Equity Loans

Home equity loans have fixed interest rates and payments, so you don’t have to worry about fluctuations in your monthly expenses. This is the greatest advantage of a home equity loan over a HELOC. The approval process is also faster and cheaper than cash-out refinancing.

Cons of Home Equity Loans

Home equity loans still have closing costs. They are generally lower than those involved with refinancing, but they are still there. As with any option that involves borrowing against your home, there is always a repossession risk if you cannot make your payments.

Personal Loans

If you prefer to finance your swimming pool without borrowing money against your home, an unsecured personal loan is your best option. Personal loans are available through most financial institutions. They require approval, but you will receive a lump sum of cash for the total amount.

Pros of Personal Loans

The application process for personal loans is much faster than cash-out refinancing, HELOCs, or home equity loans. In addition, since your home equity is not the collateral for the loan, you don’t risk losing your home if you default on the payments.

Cons of Personal Loans

Personal loans usually have a much higher interest rate than home equity financing options because they are riskier for banks. This means that you will end up paying more interest overall if you choose a personal loan to finance your swimming pool. Therefore, it’s best to compare the interest rates of several lenders if you select this financing method.

How NOT to Finance Your Swimming Pool

Up to this point, we have covered a few different options for financing your backyard swimming pool. However, one financing method is convenient, easy, and doesn’t require an application process. While it’s very tempting to purchase your pool using your credit card, we highly recommend that you don’t.

Credit cards have incredibly high interest rates. Even if you are lucky enough to have a low interest rate on your card, you will have to pay off the balance before your low interest rate expires. In addition, if your pool installer accepts a credit card payment, they often charge merchant fees above your total.

Should You Finance Your Swimming Pool?

If you cannot pay for your backyard swimming pool in full, financing is a smart idea. It’s not a requirement that you be short on cash to finance, however. Sometimes financing is still a smart option, even when you do have the money to pay for the project.

It’s expensive to install a swimming pool and often requires a large chunk of personal savings. Sometimes it’s best to keep your cash available for unforeseen situations and make low-interest payments for large purchases.

Ensure that you can really afford your monthly payments before taking a loan out for a swimming pool. A swimming pool is a luxury item and isn’t something you need.

How to Save Money on Your Pool Loan

There are some ways to make sure your loan is as affordable as possible:

  • Borrow the absolute minimum amount that you need
  • Borrow for the shortest time possible
  • Shop around for the lowest interest rate

FAQ

How Much Does Building a Swimming Pool Cost?

The average cost of an inground pool is between $30,000 and $50,000. It varies according to the type of pool you install. The price can be about $20,000 for a vinyl or fiberglass pool. Bear in mind that the costs for a swimming pool don’t just include the installation. You can expect to spend an additional $5,000 over the next ten years for maintenance.

What is a Pool Loan?

Occasionally you will see financial institutions advertise loans as “pool loans,” implying that there is something special about the loan for your swimming pool. Pool loans are unsecured personal loans.

What’s the Best Way to Finance a Swimming Pool?

If you could benefit from reducing your existing mortgage payments, cash-out refinancing is your best option. This will give you the lowest interest rates of all the financing options. However, if you don’t want to change your current mortgage, a Home Equity Line of Credit is the next best option.

Is It Financially Wise to Finance a Swimming Pool?

If you meet the credit requirements for a loan and easily make the monthly payments, there is nothing wrong with financing a swimming pool. However, keep in mind that swimming pools don’t have a good return on your investment, so make sure you’re installing the pool for your family to enjoy for years to come. Also, you won’t recoup the full cost if you sell your home.

Conclusion

Hopefully, this advice on financing a swimming pool will help you realize your backyard dreams.

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