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post #1 of 23 Old 04-12-2013 Thread Starter
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Boat loan vs. refi or home equity

Assuming for a moment one was to be so foolish as to take out a loan for a boat what would be the pros and cons between a standard boat loan and a home equity loan or home refi?

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post #2 of 23 Old 04-12-2013
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Re: Boat loan vs. refi or home equity

It really depends on how the loans are structured. If they are all full recourse loans it is a very different issue than if they are non-recourse loans.

But generally a home equity or refi loans will have a lower interest rate, and allow for longer loan terms. Which allows for lower monthly payments. A boat loan will typically cost more, but doesn't put your house at as much risk.

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post #3 of 23 Old 04-12-2013
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Re: Boat loan vs. refi or home equity

Obviously it depends on your financial circumstances, but in general whatever you can do to keep the cost of borrowing to a minimum is a good thing. A boat loan, I assume is going to be prime plus 2 or 3%, and amortized over 6 or 7 years at most? If you can swing the high payments, you will be paid off quickly, but still you pay a lot of interest. If you have plenty of equity in your house that you can secure the loan with, you will get a much lower interest rate, and probably more flexibility on the term of the loan. You could even use a secured line of credit that would give you full flexibility on payments, term and everything. The only thing you would HAVE to do is pay the interest each month. Of course you would have to be very disciplined about paying it off in a set amount of time so you don't drag it out too long and pay a fortune in interest. Refinancing your home, and rolling a boat into your mortgage? I guess that's one way to get a pretty nice boat with a relatively small payment, but you are amortizing a depreciating asset over a very long period of time. I guess you could also look at it as cashing in some of the value of the house. Don't forget, rates are low now, but if you are still paying for your boat 10 or 15 years down the road rates could be a lot higher, and the boat worth a LOT less! If you can't afford to pay it off in a reasonably short period of time, you probably can't afford it!

I would be very cautious about "spending" the equity in your house unless your mortgage is a very low percentage of the value of the house, and there is minimal chance of the market collapsing in your area. A lot of people lost their houses in the States. It would be pretty silly if you lost your house because you bought a big expensive toy!

I have been tempted to borrow big money for a much newer, bigger boat, but I keep thinking about the payments I would have to make. I would have to keep shelling out that cash even when the boat sits unused through the winter, and while I am at work, etc. Most likely we will get the mortgage paid off, and then put those payments towards a boat that will be paid off just in time for retirement, when we will really be able to enjoy a big new boat!
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post #4 of 23 Old 04-12-2013
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Re: Boat loan vs. refi or home equity

In 1989 I had a mortgaga at 11% and a car loan at 17%. My credit card was 21%.
As we were coming out of a recession, those were the going rates in BC back then.
Things are financially unstable today. Once the banks start to see stability, they will raise interest rates to control spending which keeps the cost of living in check.
I don't pretend to know your financial situation but there is a lot to be said for, "If you have to ask how much, then you probably shouldn't.
I'm just saying. =)

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Re: Boat loan vs. refi or home equity

If you refinanced and took cash out (ie, refinanced for a little more than you owe now,) would your mortgage rate be sufficiently lowered to keep the payments the same? If the cash out was enough to buy a boat, you'd be at no more risk than you were before.

The upside of a separate loan is that, if you're not fortunate enough to be in the situation described above, then your boat ownership does not place your home at risk.
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post #6 of 23 Old 04-12-2013
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Re: Boat loan vs. refi or home equity

I am by no means a financial guru!

I went with a conventional right now so i could write off the interest on taxes. (A refi allows the same thing)It's considered a second home. I don't think Interest rates are going any lower. Financing allows you to be able to get a lot newer/bigger boat. I'm seeing some rates out there as low as 4.5%, more typical around 6%. I find that acceptable. Then again; locally we have home re-fi's at $0 closing costs at 2.49%, at a 80% cash out. That's hard to turn down for a boat. (read below)

Do you have the financial stability to do this? That's a good question to ask.
Do a 15 year plan and see how a loan fits into your strategy.
In addition; i didn't want to tie the boat to the house. I feel that if you take money out against the house you should use it on the house.

As we all know; taking money out on a boat is foolish. BUT, if no one did it there wouldn't be any older boats to buy.
There are a lot of beautiful boats out there right now in the 5-15 year age group. It is definitely a buyers market.

If you have serious doubts, then borrowing money is not for you.
Talk to a financial consultant; they will talk you out of it.
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Re: Boat loan vs. refi or home equity

"Most likely we will get the mortgage paid off, and then put those payments towards a boat that will be paid off just in time for retirement, when we will really be able to enjoy a big new boat! "

The above is one of the most valuable pieces of information on this forum IMHO.

When I was much younger we bought our boat using a loan from our 401k. Nice paying yourself interest. Don't know if the rules allow that now.

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Re: Boat loan vs. refi or home equity

At 57 years old I am well past the point of financing anything more than a necessary car and we only do that when we get ones like my current 48 months ZERO or similar
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post #9 of 23 Old 04-12-2013
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Re: Boat loan vs. refi or home equity

Logically, a 5 -15 year old sailboat is a bad investment. Emotionally, it is a great idea.
FINANCING a sailboat is a really, really bad idea in the current climate...
and I'm not talking entirely about the economy.
There are fewer sailors every year. There are fewer sailboats being sold every year, more old boats sitting unsold for longer and longer periods of time... and the demographics don't point to this situation improving. Fewer sailors means lower resale value on boats, which means you are underwater longer on the loan.
See, the thing about financing a boat over 240 months is... you want to buy a bigger (newer, better equipped, nicer) boat at some point. that's okay, IF you're not underwater on your current boat, or IF your home equity has increased to continue to cover the LOC on whihc you have purchased your boat, when you decided to pull the trigger on a new one. trade in your old boat, roll the note over on the new one, good to go.
Those "IF's are becoming a bigger question mark. Yeah, the worst of the crisis has passed and rates are low, but because the crisis has passed rates won;t STAY low. Unless your financing on a low fixed rate for the entire term of a loan, you can expect to be surprised by loan payments that will likely double over the life of the loan.
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post #10 of 23 Old 04-12-2013
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Re: Boat loan vs. refi or home equity

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Originally Posted by SchockT View Post
I would be very cautious about "spending" the equity in your house unless your mortgage is a very low percentage of the value of the house, and there is minimal chance of the market collapsing in your area. A lot of people lost their houses in the States. It would be pretty silly if you lost your house because you bought a big expensive toy!
First, this is not a stab at you. The last sentence is on point.

But the notion--the very idea--that house debt is different from boat debt is irresponsible. When push comes to shove, you pay ALL of what you owe, as long as it takes. IF any other though crosses some ones mind, they should think of that when they gleefully accept the money from the bank and take it back. Personally, I don't understand buying a house where getting upside down could cost the house. That's trading futures, perhaps on the margin. Buy smaller. My first 2 boats and first home were, and I liked them just fine. It was comfortable.

Business and bankruptcy is completely different. Often the business plan is shot and there will never be enough profit to see daylight, only mounting losses (though corruption is certainly possible).

___________

I took a short (paid in 3-years) home equity loan to pay for my current boat, solely because I had investments I did not want to disturb at that time. I could have settled up at any point. I've paid off loans and debts of dying businesses that could have been bankrupted. Fortunately, others did better. But I always squared up.

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Last edited by pdqaltair; 04-12-2013 at 10:23 AM.
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