With the summer months rapidly approaching, it’s the perfect time of the year to break ground on your new swimming pool. If you’ve glanced at a few price tags however, then you might be wondering how so many homeowners are able to afford this kind of upgrade. Don’t let the costs of a new inground pool deter you from building the yard of your dreams though, as the solution is much easier than you may think.
While some will save up for years in order to afford the construction of a pool, at Inland Empire Pools we’ve found that most homeowners will choose from several financing options instead. This gives them the yard of their dreams that their families can enjoy for years to come without the wait. Also, keep in mind that while you’re putting a lot of money into a new inground pool, it will add to your home’s value and appeal for when you sell later in life. It’s a win-win! Learn about the most popular financing options available before making any decisions.
Understand the Difference Between Secured and Unsecured Loans
Before diving into the pros and cons of financing options for your inground swimming pool, it’s important to understand the difference between secured and unsecured loans. A secured loan is when a bank or lending institution offers you money using collateral to “secure” the loan. The most common form of collateral people use is their home, which the lender can claim rights to if you default on the loan. Secured loans are the most preferred financial option amongst homeowners installing a custom inground pool as it usually offers lower interest rates and payments can be spread out over a longer period of time.
An unsecured loan doesn’t require collateral and for that reason is more risky for the lender. Not only are interest rates higher, but the length of the loan tends to be much shorter so monthly payments are greater. Additionally, it’s not common that lenders will offer an unsecured loan for more than $30k which isn’t sufficient for every homeowner’s pool needs.
Consider using one of these options to finance your inground pool:
1. A Home Equity Line of Credit
Similar to a credit card, a home equity line of credit or HELOC is a decided sum that you borrow from as needed. As a secured loan, the lender uses your home’s equity to determine the amount that can be borrowed. Home equity is a number determined by taking the home’s market value and subtracting what is still owed. Like with most credit cards, a home equity line of credit can be paid off at your own pace as long as you are making the minimum monthly payments. Once you are approved, you receive a checkbook or a credit card to access the money as necessary.
Home Equity Line of Credit Pros and Cons
|Lower interest rates than HEL||Interest rates aren’t fixed leading to unpredictable monthly bills|
|Interest may be tax-deductible||Hidden fees for a home appraisal, application, an attorney, title searches and closing costs can pop up|
|Flexible spending once the loan is approved||The application process looks at your credit score, active loans, and your financial history in addition to your home equity to determine the credit amount|
|Interest accrues only on money spent, not on the full amount of credit available||Annual fees after the first year are common|
|Some lenders will consider offering part of the loan with a fixed interest rate||Failing to make payments can lead to foreclosure on your home|
|Monthly payments don’t begin until you start spending some of the loans||The lender can freeze or reduce your line of credit if the value of your home decreases or your financial situation changes|
|Fast application and approval processes||Some lenders charge penalties for inactive cards and cancellation fees if the credit line is closed out too soon|
2. A Home Equity Loan
A home equity loan or a HEL is a secured loan presented as one lump sum using your home as collateral. The loan amount is determined by the home equity value, which is why many consider a HEL a second mortgage. Most lenders will offer loans in the amount of up to 90 percent of your home equity or less, which may or may not be enough to cover the cost of an inground swimming pool. For those seeking the finances to do one big home improvement project, a home equity loan is a great choice.
Home Equity Loan Pros and Cons
|Lower interest rates than personal loans and credit cards||Higher interest rates than a HELOC|
|Fixed interest rates||Defaulting on your loan can put your home at risk|
|Interest might be tax-deductible throughout the life of the loan||Often comes with closing costs and fees|
|Funds are delivered in one lump sum rather than a line of credit, ideal for installing an inground pool||Interest must be paid on the entire lump sum of the loan rather than on smaller increments as needed as with a HELOC|
|The loan can be used for anything you want||Property value can drop, negatively affecting your home equity|
|More time to pay the loan back, usually between 5 and 30 years||A HEL is offered at a maximum of 90 percent of home equity|
3. A Personal Loan
If you have a good credit score, then you may want to consider a personal loan to finance your inground swimming pool. With the option to be taken out as a secured or an unsecured loan, it’s not essential to offer your home for collateral and the quantity of the loan can be determined solely on your credit history. Low fixed interest rates are often offered to those with higher credit scores, but you can decrease the life of your loan or offerer collateral to get a lower rate if your credit history isn’t flawless.
Personal Loan Pros and Cons
|Interest rates can be lower than other financing options and credit cards||Fixed monthly charges don’t allow for minimum payments like with credit cards|
|There are no restrictions on how the loan is used||Bad credit will leave you with higher interest rates|
|You can borrow any amount, as long as your credit score allows it||A processing fee of anywhere between 1 and 6 percent must be paid upfront|
|Lower credit scores can still qualify for personal loans with higher interest rates||Lenders sometimes charge a prepayment penalty for paying off the loan early to make up for lost interest|
|Fast application and decision process||Defaulting can lead to being sued by the lender|
4. A Cash-Out Refinancing Loan
When making improvements that will increase your home’s value such as adding an inground pool, consider a cash-out refinancing loan. It’s done by refinancing your mortgage to an amount higher than what you owe. The remaining cash can be used to pay for your new pool’s installation. You may also be able to refinance your mortgage at a lower interest rate, which will help you to save money as well.
Cash-Out Refinancing Loan Pros and Cons
|Fixed interest rates||Higher interest rates than other loan options including HEL and HELOC|
|Potential to lower your mortgage’s interest rate||Closing fees should be expected to cost you anywhere from a few hundred to a few thousand dollars|
|Interest may be tax-deductible||Missing payments can leave you at risk of losing your home|
|Stretch out your payments over 15 or 30 years||This kind of loan increases the lifetime interest costs on your home|
|Closing fees may also be tax-deductible||If your loan amount surpasses 80 percent of your home’s value you’ll need to pay for private mortgage insurance|
5. Borrowing From Your 401(k)
If you have a 401(k) retirement fund, then you may want to consider taking a loan out against it to pay for your new inground pool. While this may seem like a desperate move, it’s not at all uncommon. In fact, according to a study performed by the Center for Retirement Research at Boston College based on data from Vanguard Group, 11 percent of Americans with a 401(k) plan borrow from it each year. It should still, however, be considered a last resort. This financing option is only possible if you’re currently employed by the company that provided you with your 401(k) and the plan allows it. You can read the documents provided to you when you first signed up for the plan or speak to your company’s human resources department to learn if borrowing against your retirement fund would be possible.
401(k) Loan Pros and Cons
|No credit check needed||You forfeit any gains on the amount borrowed|
|There is no application process||You end up paying taxes on the money twice|
|Interest rates are lower than most credit cards||You’re contributing less to your retirement fund as payments go towards paying back the loan for several years|
|The interest is paid to yourself, not to a lender||Losing or leaving the job that holds your 401(k) plan will result in you owing the full amount of your loan over the next 60 days|
|There are no early withdrawal fees unless you default on the loan||Not all 401(k) plans allow employees to take out loans against their retirement funds|
|Payments can be taken directly out of your paychecks||Defaulting on the loan can result in a 10 percent early withdrawal penalty fee|
6. A Pool Financing With The Pool Builder
Some pool contractors will offer financing options directly through their company, which can make the process easier for those shopping inground pools. These can either be secured or unsecured loans with lenders they work with or through the company’s own private funds. If this is the route you choose to go in, then you will shop for pool companies with the best interest rates. Often, these rates are much higher than they would be if you shop for lenders on your own, as you’re paying for the convenience. Additionally, when you shop for pools, you want to select a company based on their quality of work and reviews rather than what kind of financing options they offer. You risk the quality of your pool when choosing this loan option.
Financing with Pool Companies Pros and Cons
|It’s convenient as financing with a pool company is a one-stop-shop||Limited loan options to choose from|
|The application process is quick and usually takes less than 24 hours||Higher interest rates than if you shopped for lenders on your own|
|Less time is spent researching lenders and pool contractors||You can end up with a poorly constructed pool if you select a company based on their financing options|
|Harder to be approved if you don’t have good credit|
At Inland Empire Pools, we feel that our clients would be best served by financing their inground pool with an independent financial institution. This ensures that they get the best kind of loan for their individual circumstances at the lowest possible interest rate, while we focus on providing them with quality service. If you’re ready to transform your backyard with a custom inground pool, check out our pricing going on right now and contact us to get started!