How to Finance a Pool: Know Your Options

So you're taking the plunge and installing a swimming pool, but what's the best way to pay for it? Options can include refinancing your mortgage with cash out, tapping home equity with a home equity loan or line of credit, or taking an unsecured loan or line of credit from a financial institution. In general, your choices include loans secured by your home or an unsecured loan or line of credit.

How to Finance a Pool with Home Equity

Home equity is roughly the difference between your home's current value and how much you owe on your mortgage. Home equity can provide all or part of the funds needed for installing your pool. If you know how much your pool installation and related expenses will cost, you can borrow a home equity loan for the amount you'll need. It's a good idea to borrow a little more in case of unexpected expenses. A home equity loan is also called a second mortgage as it is secured by your home and has regularly scheduled payments of the same amount over a specified repayment term.

If you're not sure how much your pool will cost, you can apply for a home equity line of credit, which typically carries a variable interest rate and allows you to draw against your credit line as needed. A home equity line of credit, also called a HELOC, can be a convenient source of cash for expenses related to your new pool or other financial needs. A positive aspect of establishing a home equity line of credit is its flexibility; you use funds as needed and pay interest only on amounts drawn against your credit line.

Another option for accessing home equity to finance your pool is refinancing your current mortgage with enough extra cash out to pay for your pool. Refinancing provides a way to roll your pool installation costs into your new mortgage payment, as well as the potential advantage of a lower mortgage rate, but it isn't cheap. You'll be required to pay closing costs that can reduce or absorb potential savings associated with a lower mortgage rate.

Whether you choose a home equity loan, a line of credit or a mortgage refinance, your home services as collateral for these types of loans. This means that if you can't repay, you could lose your home to foreclosure. The Federal Trade Commission says it's important to weigh the advantages and potential risks before borrowing against home equity.

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Other options for swimming pool loans include taking out a personal loan or line of credit. As with home equity loans and lines credit, you can choose a loan of a specific amount with consistent installment payments or you can choose a personal line of credit. Also called signature loans, personal lines of credit offer a maximum credit line that you can draw against when needed. This can be convenient in situations where extra expenses occur or you decide to expand your pool installation to include extras such as a hot tub, waterfall or new landscaping to show off your pool.

Personal loans and lines of credit do not require collateral, but the tradeoff is that they carry higher interest rates. Rates can vary according to your credit history, the amount you borrow and lender policies, but you can expect to pay a higher interest rate than you would for home equity loans or refinancing.

Before borrowing to install a pool, it's a good idea to estimate how much a pool will cost versus how much it may add to your home value. Whether or not installing a pool can add home value depends on your neighborhood, climate and local zoning and building regulations that can add to the cost of your project. Homeowners should also factor in the cost of maintenance, higher homeowners' insurance premiums and the risks of lawsuits associated with swimming pools. Discussing your plans with your insurance agent, attorney and financial advisor can help with deciding how to finance a pool.

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