Financing a swimming pool addition?
I've wanted a pool forever and considered selling or renting my home to get a home with a pool. I know they can be a pain and expense in terms of upkeep, so please don't respond telling me what a waste it is. I've decided to keep my home and add a pool. Here are my options. (1) Refinance my current mortgage ($130k) to include the cost of the pool ($30k). The pool would be amortized over 30 yrs...so the jump in payment would only be a couple hunded a month. I'd have to pay fees with the refinance, and my rate would go up about half a point from where it is now. (2) Do a home equity line of credit for the cost of the pool. I'd only pay interest and a small portion of the balance but would pay off the pool when the house is sold (though there's no plan to do so for the next 5+ yrs). Interest would be deductible. (3) Pay for it out of savings and be done with it. This seems cleanest, but there's no tax deduction and I deplete part of my rainy day fund. Suggestions? Levendis: As to rates, my current mortgage is at $130k at 5.5 percent. If I refinance I'd be looking at 15 years I might be able to get 6, or slightly higher, 30 years would probably be 6.5. Home's value is at $260 plus or minus. I recognize I won't get $30k improvement in equity by adding the pool. The HELOC I have now for $10k is inching up to 9%...however, I've received offers of a standard Home Equity Loan for $75k at $6.99 fixed (30 year). As to savings...I have about 90k with about 75 of that in CDs.
Public Comments
- I would go for a 2nd mortgage for 15 years at a fixed rate. Also make sure you get a performance bond from the builder. This protects you in case the pool is not properly built. He can not get a machanics lien and forclose on the house. I was a bill collector for 35 years and heard horror stories from customers after they had the pool built.
- I like plan #3, but only if you'll have enough rainy day savings left over. If you'll have at least three months living expenses in your emergency fund after taking out the $30k, then I would do it that way. I don't like plan #1 because it would increase the interest rate on your entire loan (the house and the pool). You'd be better off keeping your current lower rate on the house. Plan #2 would be OK, especially if you paid off the pool as quickly as possible, but #3 is preferable if you can afford it. Don't allow the consideration of a tax deduction to enter into the equation. It's better to pay no interest (plan #3) than to pay tax deductible interest.
- You definately want to take advantage of the tax deduction plus that $30,000 in the bank can be used to generate income (through CD's, Investments, etc...) rather than pay for a pool. Unfortunately since I do not have your actual intrest rates I can not determine the true value of the pool but you can. In terms of long term debt the Home Equity Line is a better choice since it will cost you less money in the long run while costing more in the short term. In the short term the Refinance is better because although you pay more over 30 years it introduces a lower monthly payment. Another factor is your neighbor hood in relation to the cost of your home. If the other homes in your neighborhood are all valued at $130,000 then in 5 years do not count on being able to sale your home for $160,000 and recoup the cost of the pool. There are exceptions but you should not base financial decisions on them. That all being said I would suggest the Home Equity Line of Credit provided the larger monthly payment does not radically affect your familes monthly finances. I recommend this because it presents less long term debt to your family while preserving a descent low intrest rate. However after you pull money from the HELOC I suggest locking the rate unless you predict it will be cut again. Also please tell me you have that $30,000 in saving in some form of CD or high intrest vehicle please.
