Financing your swimming pool

[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).