With the COVID-19 pandemic leaving many public pools closed this summer, more and more homeowners are considering getting their own pool. But with the installation of an inground pool running anywhere from $28,000 to $55,000, this can be an expensive—albeit rewarding—prospect. Should you fund your swimming pool through a cash-out refinance, a home equity loan or line of credit, or some other means? Learn more about the advantages and disadvantages of your various financing options.
If you have equity in your home, you may be able to tap some of this equity through a cash-out refinance. Through this process, you'll take out a loan that's enough to pay off your current mortgage, cover closing costs, and put some cash back in your pocket. You can opt for a 30-year loan like many traditional mortgages or keep your term short by choosing a 10-, 15-, or 20-year mortgage.
Even if you don't have the equity for a cash-out refinance, refinancing can often help you free up some cash flow. Switching from a 15- or 20-year mortgage to a 30-year mortgage can lower your payment by hundreds of dollars per month, as can reducing your interest rate while keeping the same term.
2. Home Equity Loan
A home equity loan also allows you to tap your home's equity for a project like a swimming pool. But instead of revising your entire mortgage like a refinance, a home equity loan (or HEL) is essentially a second mortgage with its own separate payment. If you miss a HEL payment, you could be at risk of foreclosure, even if you continue to make your regular mortgage payments on time. Because of this, it's important to make sure you're familiar with your HEL terms and can afford the monthly payment on your loan principal.
3. Home Equity Line of Credit
Like a HEL, a home equity line of credit (HELOC) operates as a second mortgage on your home. But unlike a HEL, which is generally a static loan for a fixed amount of money, a HELOC is more like a credit card that allows you to withdraw (and repay) funds up to the HELOC limit. Most HELOCs are open for a certain length of time, and any balance remaining on the loan at the end of the term will then be rolled over into a mortgage with a fixed interest rate and term. Both HELOCs and HELs may be subject to variable interest rates, which can increase or decrease your payment amount over the years.
Whichever financing method you choose, it's important not to overextend yourself. Many lenders will limit a cash-out refinance, HEL, or HELOC to require you to retain at least 20 percent equity in your home. In other words, if you have a $200,000 home with a $100,000 mortgage, the maximum many lenders will allow you to take out is $60,000. This helps you avoid going "underwater" if property values drop.
Learn more about your options by contacting companies like Liberty Escrow Inc.Share