Financing your swimming pool

[Trish29]

The home equity credit line was never used and closed a year later when we locked into a 5% 15 year fixed mortgage.
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wow.. that's a good fixed rate lock. The best one I've found so far is with Navy Federal and it's lock is at 6.5%.. all other's are higher percentages. But I like this alternative. I think I'm clearer now on what direction to take. I'm seeing about getting the PMI off the first mortgage then applying for this HELOC through Navy Fed. Deduct the interest on it come tax time. Seems like a plan.

[PhantomAndy]

Yes - 5% fixed was a great deal. I have a friend in the banking business, not that I got a better rate, but he called me when the rates hit 5% about 1 1/2 years ago, and we moved quickly to get that deal. Total savings for us if we keep the loan to term will be about $150,000 over our previous loan that was 30yrs @ 6.25%.

That was our 3rd refinance since buying the house in 1997 (started on a 30 @ 8.125%).

Rates are on the rise now - our current home equity credit line is at 6.75% so I suspect that the typical fixed rate loans are in a similar range for most buyers.

Good luck with your project - you will enjoy your pool no mater what option you choose to go with.

[Trish29]

Thanks PhantomAndy...

*sigh*.. recalling the days when I had a 4.25% heloc.. those were the days......

[Sardian]

My line of thought is that if you can't pay cash for a pool then you shouldn't buy one. But that is just me. Even with a good rate and financed for only 5 years, you will be paying the bank at least $5,000 in interest on a $25,000 loan.

I would suggest cutting back on other things and save up for a couple of years and pay cash. You'll be surprised at how hard it is to let go of the money when you have it in cash.....I saved up $30,000 for a car once and decided I didn't really want the car that bad once I had the cash in hand.

Just my thoughts,

Russell

[GTakacs]

My line of thought is that if you can't pay cash for a pool then you shouldn't buy one.

Well that is one way of living. Let's see how my reasoning goes:

Let's assume the following:
- I will live in my hosue for 15 years
- I can buy a pool in 2006 for $40k
- I can get financing at 7.5% for 15 years as of today
- I can earn 4% interest on my money if I save it.
- Inflation will be 2% annually on pools in the next 15 years

OK, now let's look at the financing figures.
If I borrow $40k for 15 years at 7.5% today my pool will cost me $370/month for 15 years. Since I had the pool for the entire 15 years my actual cost of the pool was $370/month (only the monthly instalment payment).

If I have no money in the bank right now (I am broke) and I would not want to finance it, I'd have to start saving up for it. I'd save $370/month just as if I were to make the payment on the financing. After 108 months I would have $48,004 in the bank if I saved at 4% interest compounded monthly. By then the $40k in today's money pool would cost $47,881 given the 2% inflation. So that would mean I'd have to save 108 months, 9 years precisely before I could enjoy my pool.

After 9 years, I'd still save the $370/month for the last 6 years at 4% interest while enjoying my pool. I would have $30k in the bank after 6 years. So the pool would cost me $508/month, (($370*180 months)-$30,000 saving)/72 months. So the true cost of the pool just went up from $370 to $508 per month not to mention the actual lack of a pool for the first 9 years while living in my house.

I hope the above math makes sense and proves just how much value there is in "renting" a pool.

Note that the numbers were calculated based on the above assumptions.

Edit: I forgot to add that I did not take that into account the fact that you can also deduct the interest from your AGI (Adjusted Gross Income) for tax credit on a home improvement/equity loan which makes borrowing even more beneficial. On the above $40k loan at the 20% bracket that would be an additional tax saving of $5320 over the 15 year term (more in the early years, less in the later).

[GTakacs]

Even with a good rate and financed for only 5 years, you will be paying the bank at least $5,000 in interest on a $25,000 loan.

Actually at 6% for 5 years on $25k you'd pay just under $4k in interest.

[Jeffski]

Or you lose your job, can't pay the loan, and lose your house too.

I am not against borrowing money, but when you do make sure you can pay all your bills even on your worst day.

[GTakacs]

Or you lose your job, can't pay the loan, and lose your house too.

I am not against borrowing money, but when you do make sure you can pay all your bills even on your worst day.

Sure, I guess. But to be honest I doubt that a bank on a 3rd mortgage would rather foreclose your house than give you a bit of time off to regroup and find another job. By the time they sell your house and pay off your first and second mortgage, little if anything is left for the 3rd mortgagor.