Should I Take Out a Home Equity Loan to Install a Pool?

A backyard pool can be a great addition to your home. It offers a fun place to relax, exercise and entertain family and friends. But installing a pool isn’t cheap. So, if you’re thinking about getting one, you might be wondering if a home equity loan or another type of pool loan is the right way to pay for it.

Let’s take a closer look at what a home equity loan is, its benefits and whether it’s a smart choice for your situation.

What is a home equity loan?

A home equity loan allows you to borrow money based on the equity you have in your home. Equity is the difference between your home’s market value and what you owe on your mortgage.

For example, if your home is worth $300,000 and you still owe $200,000, you have $100,000 in equity. Lenders typically allow you to borrow up to 80% of your home’s equity.

A home equity loan works like a traditional loan. You get a lump sum of money upfront and repay it in fixed monthly payments over a set period, usually 5 to 15 years. These loans typically have lower interest rates (cost of borrowing) than credit cards or personal loans because the borrower’s home is used as collateral to secure the loan. One downside is the lender has the right to repossess the home if you don’t make payments.

Consider how much a pool could cost

Before deciding how to pay for a pool, it’s important to understand the costs. The price of a swimming pool varies depending on the size, materials and features you choose.

• Above-ground pools: $1,000 – $20,000
• In-ground vinyl pools: $20,000 – $40,000
• In-ground fiberglass pools: $25,000 – $60,000
• In-ground concrete pools: $35,000 – $65,000

On top of the initial cost, you’ll also need to budget for ongoing maintenance, repairs and higher utility bills. Having a solid estimate of these costs could help you figure out what makes the most sense for your budget before you apply for a home equity loan.

Pros of using a home equity loan for a pool

Applying for a home equity loan to finance your pool has several advantages:

• Lower interest rate: Home equity loans usually have lower interest rates because the home acts as collateral, making this kind of loan a more affordable option.
• Fixed payments: You’ll have predictable monthly payments which could help with budgeting.
• Potential home value increase: A well-maintained pool could add value to your home making it more attractive to buyers in the future.

Cons of using a home equity loan for a pool

While a home equity loan has benefits, there are also risks to consider, including:

• Your home is collateral: If you fail to make payments, the lender can foreclose on your home.
• Long-term commitment: Since these loans have repayment terms of up to 15 years, you could be paying for your pool long after you stop using it.
• Closing costs: Home equity loans come with closing costs which can be 2% to 5% of the loan amount.

Other pool financing options

If you’re not sure about using a home equity loan, there are some other pool loans and financing options to consider:

• Personal loans: This option allows you to borrow a lump sum of money and repay in monthly installments. Depending on the lender, you can apply for a secured or unsecured loan. In many cases, the collateral used for a secured personal loan is an automobile.
• Home equity line of credit (HELOC): Unlike a home equity loan, a HELOC is a revolving line of credit and works a lot like a credit card. You can borrow money as needed and only pay interest on what you use during the draw period. You’ll repay the interest and principal (original loan amount) during the repayment period.
• Cash-out refinance: A cash-out refinance lets you replace your existing mortgage with a larger one, giving you access to the extra funds — perfect for financing a new pool. While refinancing does involve fees, the bigger factor to watch is the interest rate and APR. Homeowners typically choose to refinance when interest rates are falling, not rising.

Is a home equity loan the right choice for you?

Deciding whether to use a home equity loan for a pool depends on your financial situation and long-term goals. Here are a few questions to ask yourself:

• Can I afford the monthly payments without straining my budget?
• Do I plan to stay in my home long enough to enjoy the pool and see a return on investment?
• Am I comfortable using my home as collateral for a loan in addition to my mortgage?
• Have I compared other financing options?

If you have strong home equity, a stable income and a long-term plan to stay in your home, a home equity loan could be a smart way to finance your pool. However, if you’re unsure about taking on that form or any debt or plan to move soon, exploring other options may be a better choice.

Consider all your options before you take the dip

A pool can bring years of enjoyment but it’s important to carefully consider how to finance it. While a home equity loan possibly offers a low interest rate and fixed payments, it also comes with risks. Before making a decision, compare different pool loans and financing options and make sure the investment aligns with your financial goals.

With the right planning, you could turn your backyard into an oasis.

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