Should You Get a Home Equity Loan for a Pool?

Choosing a home equity loan might lower your interest rate

Adult and child play in a swimming pool at home.
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Tony Garcia / Getty Images

A home equity loan lets you borrow against the home equity you’ve accumulated—the difference between the value of your home and how much you still owe on the mortgage. This type of loan offers a lump-sum amount of money that must be repaid over a certain period in fixed monthly payments. Many lenders allow you to borrow as much as 80% of the equity in your home.

Key Takeaways

  • Installing an in-ground pool usually costs tens of thousands of dollars.
  • In warmer regions, a new pool may add as much as 7% to your home’s resale value.
  • A home equity loan may be an attractive option for a pool project, as this kind of loan usually charges a lower interest rate than a credit card or personal loan.
  • Your home serves as collateral for a home equity loan. So remember that if you fall behind on loan payments for your pool project, the lender may foreclose on your home.

Pool Construction Costs

According to estimates published in 2022 by home improvement website HomeAdvisor, the typical cost of an in-ground pool ranges from $38,370 to $72,433, or an average of $55,188. Among other things, the cost depends on your location, the building materials, the size, and the pool’s amenities (such as slides and water features).

From design through construction, it can take roughly six to 12 weeks to build an in-ground pool.

An above-ground pool costs far less than an in-ground pool does. The price tag for an above-ground pool ranges from $883 to $5,019, according to HomeAdvisor estimates published in 2022. The average is $2,909.

The cost of installing an in-ground pool varies based on factors such as labor expenses, construction materials, and size.

Pros and Cons of Using a Home Equity Loan for Pools

Pros
  • Lower interest rate than some options

  • Interest rate may be fixed

  • Potential tax break

Cons
  • Closing costs

  • Risk of foreclosure

  • Higher interest rate than a HELOC

Pros Explained

  • Lower interest rate: A home equity loan often charges a lower interest rate than a personal loan or credit card does.
  • Interest rate may be fixed: Unlike a home equity line of credit (HELOC) or credit card, the interest rate for a home equity loan typically doesn’t change.
  • Potential tax break: Because a pool project is a home improvement, interest paid on the loan may qualify for a tax deduction.

Cons Explained

  • Closing costs: Closing costs for a home equity loan may be 2% to 5% of the amount borrowed.
  • Risk of foreclosure: If you fall behind on loan payments, the lender might foreclose on your home, which serves as collateral.
  • Higher interest rate than HELOC: The interest rate for a home equity loan generally is higher than it is for a HELOC.

Should You Use a Home Equity Loan for a Pool?

A number of considerations come into play when you’re figuring out whether to use a home equity loan, also known as a second mortgage, for a pool project.

When To Use a Home Equity Loan for a Pool

  • A home equity loan might be a go-to source of money for a pool project if you don’t have enough money in the bank to pay for it.
  • If you’re paying for a pool project with a home equity loan, this financing method often charges a fixed interest rate, offering more predictability in terms of your monthly payments.
  • Home equity loans usually come with lower interest rates than credit cards and personal loans.
  • If you live in a warm climate, it might make sense to take out a home equity loan for a pool. In warmer places, an in-ground pool can increase the resale value of your home by as much as 7%, according to HomeAdvisor.
  • The potential tax deduction on interest charged for a home equity loan may make this a more attractive financing method than a personal loan or credit card, which don’t offer the same tax break.

When Not To Use a Home Equity Loan for a Pool

  • If you’re concerned about sinking a lot of money into a pool project, a home equity loan might not be the way to pay for it. That’s because it’s unlikely you’ll recover the full cost of the project in terms of your home’s resale value, according to HomeAdvisor.
  • A home equity loan might result in more interest charges and other costs than other financing options, such as a HELOC.
  • If you’re worried about possibly losing your home to foreclosure, a personal loan or credit card could be a better choice, because you wouldn’t be jeopardizing your home as collateral.
  • The interest and other expenses associated with a home equity loan will drive up the cost of a pool, as opposed to dipping into your savings to pay for the project.
  • If you already have a lot of debt, it might be wise to skip a home equity loan and instead tap into savings to pay for a pool project.
  • A lack of home equity in your home may prohibit you from being approved for a home equity loan.

Alternative Ways To Finance a Pool

A home equity loan isn’t the only way to dive into paying for a pool. Here are several alternatives.

HELOC

A HELOC is a revolving line of credit, similar to a credit card. Your home serves as collateral for a HELOC. A lender approves a borrower for a certain HELOC credit limit. The borrower then can draw on that source of money as needed, as long as they don’t go over the credit limit. The lender charges interest only on the amount of money you use, not on the amount you’re approved for.

One advantage of a HELOC compared with a home equity loan is that the lender charges interest but not points, fees, and other charges. But one disadvantage is that a HELOC usually comes with a variable interest rate, while a home equity loan typically comes with a fixed interest rate.

Cash-Out Refinance Loan

A cash-out refinance loan pays off your existing mortgage and replaces it with a new mortgage. The new mortgage may have different terms, such as a longer payoff period. Cash-out refinance loans feature both fixed and variable interest rates.

Once the existing mortgage is paid off and various closing costs are covered, the borrower receives the remaining money in a lump sum.

Cash-out refinance loans generally have lower interest rates than home equity loans. However, your total mortgage payment likely will go up when you take a cash-out refinance loan.

Credit Card

A credit card is another option for financing a pool project. Unlike a home equity loan, a credit card offers quick access to cash. However, the credit limit for a credit card may not cover the cost of a new pool, whereas a home equity loan may provide more money.

In addition, you may be eligible for a special credit card offer, such as a 0% annual percentage rate (APR), that can trim the overall cost of your pool project. But if you don’t qualify for a special offer, the interest rate for a credit card may be much higher than a home equity loan.

Pool Loan

A pool loan normally is an unsecured personal loan, meaning collateral is not required. Your credit history will play a big part in determining whether you’re eligible for a pool loan.

Approval for a pool loan may take several days, rather than the several weeks for a home equity loan. However, because a pool loan typically isn’t secured by collateral, it likely comes with a higher interest rate than a home equity loan. Also, a pool loan may give you access to less cash than a home equity loan.

Construction Loan

A loan for pool construction allows you to borrow against the future value of your home. It’s a short-term loan that eventually changes into a permanent mortgage. Some lenders advise against using a construction loan for a pool, as the interest rate and fees might be higher than they are for a home equity loan or a typical mortgage.

Unlike a home equity loan, a construction loan won’t give you access to a lump sum of cash.

Home Improvement Loan

Unlike a home equity loan, little to no equity is required for a home improvement loan. A home improvement loan comes with fixed interest. However, getting a home improvement loan demands more legwork than a home equity loan. For instance, you’ll need to provide a written agreement with a contractor that explains the project and outlines the cost.

Frequently Asked Questions (FAQs)

What is the typical repayment period for a home equity loan?

A lender typically gives a borrower five to 20 years to pay off a home equity loan. However, some home equity loans may have a payoff period as long as 30 years.

How long does it take to get a home equity loan?

It can take roughly 14 to 45 days to close on a home equity loan. The timeline varies from lender to lender. By comparison, it may take one day to one week to get a personal loan.

Correction - May 9, 2022: This article has been updated to correctly state that an unsecured personal loan does not require collateral.

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