Swimming pools are considered a practical luxury amongst American families. However, it’s not a secret that building one or even renovating your old pool is not at all cheap. That’s why many families opt to take up pool loans. Getting a pool loan can help you add more money into your budget allowing you to get the right materials and the right contractors to help you achieve the pool you want. However, just like any other type of loan, financing your pool entails responsibilities like having to stick to your monthly payment terms. That said, knowing how your pool loan is calculated can help you determine the monthly costs it involves.
So, whether you’re a walking calculator or if you’re someone who slept through your math subjects, this article is for you.
Using a Pool Loan Calculator
Pool loan calculators are automated online programs that easily calculate your pool loan using a predetermined formula. Pretty much how a basic calculator works, an online pool loan calculator follows a set of rules to help you calculate your monthly pool payment costs. Here are the set of values you need when using a pool loan calculator.
- Total amount
- Down payment
- Interest rate
- Amortization period
Simply enter the values on the necessary fields and these pool loan calculators will work like magic. Pool loan calculators are often found on websites and webpages put up by banks, financial institutions, credit unions, and other lenders, but they can also be set up by pool contractors who offer in-house financing services. While nothing beats having to talk to a financial advisor or a bank representative, having these online tools can help prepare you even before you sign the contract.
If by any chance you want to get into the nitty-gritty of calculating the monthly payment of your pool loan, below are some steps you can follow to make out the costs.
Identifying your Type of Loan
One key factor in knowing how to compute your pool loan is to identify what type of pool loan you have. At the time of writing, there are two types of loans offered by banks and financial institutions that apply to home improvement projects like building or renovating a pool. First, and the most common is amortizing loans.
What are amortizing loans?
Amortizing loans work by the principle of amortization. Amortization is a principle used in accounting that aims to lower the book value of a loan over a period of time. When it comes to pool loans, amortization is the spreading of the payments over a time frame the borrower and the lender has agreed on. An amortized loan will typically have scheduled payment terms that include both the principal amount as well as the accrued interest. Usually, amortized loans pay off the interest expense for the period and the remaining amount is put forward reducing the principle amount. That said, the principal portion of the payment increases as the interest portion decreases. Then, you have interest-only loans.
What are interest-only loans?
As the name implies, interest-only loans are loans where the borrower pays off only the interest of the loaned amount for a certain period of time. The principle amount is later paid off either as a lump sum or in successive payment terms. Both the borrower and the lender must agree on a certain time frame where the interest will be paid. This will result in easier payment terms, at least for the agreed time frame. From there, the principle amount is typically paid off in increments, likewise agreed by both parties, or in some cases, in full.
Both interest-only loans and amortizing loans can be used for your pool. The difference in the payment terms usually becomes the deciding factor for most homeowners as they base what type of loan they get from their financial status. The advantage of taking up an amortized loan is that you will have a fixed rate to pay in a fixed amount of time allowing you to plan your payments accordingly. On the other hand, an interest-only loan allows you to breathe easy in the first few years of your payment terms, but will have you deal with a large sum when the interest-only period ends.
Computing Each Type of Loan
Let’s start with amortizing loans. As we’ve briefly covered above, amortizing loans work by applying some of your payment toward your principal balance and your monthly interest. Because the amount you owe is reduced overtime, your interest charges will also go down until you get to pay off the entire borrowed amount.
Now let’s do some math. Say you took up a pool loan for $20,000.00. The annual percentage rate is at 6% and is payable at a span of five years. To get the loan interest payments, you have to divide the interest rate against the number of payments required in a year, which is typically 12. Once you get that figure, multiply that to your loan’s initial balance, starting with the full amount of your loan.
This is how it should look like.
“.06 / 12 = .005”
“.005 x $20,000.00 = $100.00”
This simple calculation gives you an idea of what your first month’s interest payment will look like. From here, you can make out how much your successive months should turn out. Now, onto interest-only loans, which is easier than amortized loans.
To compute the monthly payment for an interest-only loan, start by getting your loan balance and the annual interest rate. Multiply both values and you’ll get your monthly loan payment. Say you’ve loaned $20,000.00 with an annual percentage rate of 6% and is payable by 10 years. This is how your monthly payment terms would look like.
“$20,000.00 x .06 = $1,200.00”
“$1,200.00 / 12 = $100.00”
You must bear in mind that as we’ve mentioned earlier, interest-only loans will have you pay only the interest in a certain span of time which means that it won’t last forever. When the monthly interest payment is finished, you will have to pay the principle amount either in large increments or in a lump sum.
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Check out how to use a pool loan calculator to help you determine the monthly payment costs of your loan. You can also check the other steps you can use to calculate the pool loan monthly payment costs manually. For in-house pool financing services, check out Stanton Pools.