debt

Loan options for building a backyard pool

Don TaylorDear Dr. Don,
We plan on purchasing a swimming pool for our home in the coming year. As for how to pay for it, we are deciding whether to save the money, which should take about a year, or get a home equity line of credit or second mortgage and take a tax deduction on the interest expense.

We make about $175,000 a year and have no real debt, other than the house. Unfortunately, we do not have many deductions other than two children and filing as married filing jointly.

Thanks,
-- James Jumpin'

Dear James,
Your kids are only young once, right?

If you've decided that you want to have a pool, then why have them sit out a season while you save for it? If you can get the pool installed and have it running this season, that's what I'd recommend.

By your estimate, you can save the money over a year's time, so you can pay off the loan with only a year's interest expense. If pool prices rise by more than the interest expense over the following year, you've lost both a season in the pool and the savings.

The decision on how to finance the pool depends on the interest rate on your existing mortgage, the equity in your home and how long you plan to be in the house. A cash-out refinancing makes sense if it reduces the interest rate on your existing mortgage but carries higher closing costs than a home equity loan or line of credit.

With a plan to repay the obligation quickly, you might be better off with one of the loans. Make sure you understand any prepayment penalties connected to the home equity line or loan.

If the mortgage interest deduction just replaces the standard deduction on your taxes, then it's not really helping you on tax savings. Jump in and enjoy!

Get more news, money-saving tips and expert advice by signing up for a free Bankrate newsletter.

Ask the adviser

To ask a question of Dr. Don, go to the "Ask the Experts" page and select one of these topics: "Financing a home," "Saving & Investing" or "Money." Read more Dr. Don columns for additional personal finance advice.

Bankrate's content, including the guidance of its advice-and-expert columns and this website, is intended only to assist you with financial decisions. The content is broad in scope and does not consider your personal financial situation. Bankrate recommends that you seek the advice of advisers who are fully aware of your individual circumstances before making any final decisions or implementing any financial strategy. Please remember that your use of this website is governed by Bankrate's Terms of Use.

advertisement

Show Bankrate's community sharing policy
          Connect with us
advertisement
CREDIT CARD WEEKLY NEWSLETTER

Get advice for managing credit cards, building your credit history and improving your credit score. Delivered weekly.

Debt Adviser

Pay off $50K card debt fast?

Dear Debt Adviser, I have a debt of $50,000 from balance transfers and credit line accounts. If I were to pay just the minimum due every month (which is what I can afford now) how long will it take to clear including... Read more

advertisement
Partner Center
advertisement

Connect with us