Should I Use a Home Equity Loan to Build a Pool?

Adding a swimming pool has recently surfaced as a popular mode of outdoor entertainment. But homeowners need to be swimming in cash to pay for it. 

The number of in-ground residential pools increased by 21% between 2019 and 2020, according to data from the Pool & Hot Tub Alliance. And they’re still in demand. The National Association of Realtors (NAR) recently reported that some homebuyers are willing to pay more for a property with a swimming pool already in place.

Pools are expensive. The average cost to install an in-ground pool is $37,000, and some projects can even reach six figures. But rising home values could have increased your borrowing power. Homeowners received an average equity raise of $64,000 in the first quarter of 2022, according to the most recent Homeowner Equity Insights report by housing data firm CoreLogic.

If you don’t have cash on hand to cover the costs, a home equity loan could be a good way to finance a pool. However, home equity loans come with their own benefits and drawbacks. 

Here’s what to know.

Advantages and Disadvantages of Using a Home Equity Loan for a Pool

Home equity loans have a lot of great features, starting with tax breaks, low interest rates compared to other financing options, and fixed monthly payments. But they come with downsides, too. 

Return on Investment 

Homes with pools may sell for about $27,200 more than ones without, so you could get a return on your investment. However, keep in mind location. According to a Redfin analysis, a pool can add $95,393 in value to a home in sunny Los Angeles. But in Boston, which is cold for at least half the year, a pool may actually lower a home’s value by $15,484.  

But the ROI on your home equity loan isn’t guaranteed, says David Haas, a certified financial planner and owner of Cereus Financial Advisors. If you’re using a home equity loan for home improvements, you may add value to your home, which can replenish the equity you took out. But a swimming pool isn’t guaranteed to add value. And “if you’re doing something to the house that doesn’t add value to it, you’re just taking equity out of the house,” Haas says. “You won’t have it if you need it later, and you’re making mortgage payments longer.”

Keep in mind, lenders typically limit the amount you can borrow to 85% of your home’s market value, minus the balance on your current mortgage. So homeowners with little equity might not be able to take out one of these loans.

Tax Breaks

Homeowners can deduct the interest paid on home improvements, which typically includes swimming pools. However, you’ll have to itemize using Schedule A. Swimming pools may boost your home value if they’re desirable or commonplace in your region. 

Lower Interest Rates 

Interest rates on home equity loans are typically lower compared to other financing methods, such as credit cards and personal loans, because the loan is secured by an asset. This means your payments are predictable and you know the total cost of financing upfront. 

Your Home Is Collateral

Home equity loan is a second mortgage, so your property acts as collateral for the loan. The bank may foreclose if you miss payments. That presents a major risk for borrowers. “If you can’t make payments, the house could get repossessed by the lender,” says Vikram Gupta, executive vice president and head of home equity at PNC Bank. 

You also might not be able to borrow the amount you need if you haven’t had much time to build equity. 

Closing Costs and Fees

Some home equity loans come with closing costs and other fees. These typically range from 2% to 5% of the total loan amount and may include application fees, origination fees, credit report fees, appraisal fees, and more. 

Alternatives to Financing a Pool

You don’t have to use a home equity loan for pool financing. Here are some alternatives to consider:

HELOC

A home equity line of credit also lets you tap the equity in your home. But instead of getting the money in a lump sum, you get access to a revolving credit line secured by your home. You can withdraw money up to a maximum limit, pay off the balance, then reuse the line of credit during the “draw period.” Once the draw period ends, you’ll repay the balance either in full or in installments. Rates on HELOCs are typically variable, which means your payments may change over time, but you’ll only pay interest on the outstanding balance.

Cash Out Refinance

A cash-out refinance loan is a mortgage for more than you currently owe on your home. With the new loan, you’ll pay off the existing mortgage and keep the difference in cash, which you can use for your swimming pool project. Mortgage rates have significantly increased so far in 2022, which means “a cash-out refinance is probably not a good idea right now,” Gupta says. “Most customers who have a mortgage have probably refinanced in the past three to five years to an attractive rate. With a cash-out refi, the homeowner may lose the great rate they have locked in for the first mortgage.”

Personal Loans or “Pool Loan”

A “pool loan” is typically an unsecured personal loan you can use to finance a swimming pool. Loan amounts range from around $1,000 to $100,000 and terms may stretch from two to seven years. Unsecured personal loans use your credit history and income to determine qualification and loan terms. Compared to home equity loans, interest rates are usually higher and loan limits may be lower on swimming pool loans. But they may be a good option if you don’t have enough home equity to borrow against or you don’t want to use your home as collateral. 

Credit Card

Credit cards may be the quickest way to pay for a swimming pool if you already have one or more. Most credit cards are unsecured revolving lines of credit, which means your assets are safe if you default on payments. But the variable interest rates are usually higher than what you’d find on a home equity loan, and the credit limit on your card may not be high enough to cover all of the costs of a swimming pool.

Vendor Financing

Some vendors, such as Home Depot, offer financing options that work like home improvement loans. You’ll receive a lump sum of money and may get a 0% introductory interest rate for a period of time, such as six months. If you repay the balance within that time frame, you avoid interest altogether. But check the terms, as some of these loans charge deferred interest. Haas suggests using this option if you don’t want to tap your home’s equity. 

Expert Take: The Best Way to Finance a Pool

A home equity line of credit (HELOC) is often the best option for financing a pool when interest rates are high. You’ll only pay interest on the amount you borrow, so you’re not stuck with a high interest rate for the entire loan term as you would with a home equity loan. You may be able to save money on interest costs if rates dip before you take the next draw from the line of credit. 

Some homeowners use a combination of financing options to fund a swimming pool, Gupta says. For instance, you can pay for the initial deposit using a personal loan or a 0% credit card if you need funds quickly. At the same time, start the home equity loan or HELOC application. Once the home equity loan or line of credit is approved, pay off the balance on the personal loan or credit card.  

Average Cost of Building a Pool

The average cost to build a pool is $37,000, according to Pool Research, but the price varies widely based on several factors. The size and type of pool are the biggest cost drivers, and the price of labor and materials can change by region or vendor. If you can do some of the work yourself, you’ll save a few dollars — but you’ll need to make sure you have the time and experience for it. In addition to the pool installation, you could pay tens of thousands of dollars in maintenance costs over time, too.

Frequently Asked Questions (FAQ)