# Boat loan vs. refi or home equity



## davidpm (Oct 22, 2007)

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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## Stumble (Feb 2, 2012)

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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## SchockT (May 21, 2012)

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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## Dog Ship (Sep 23, 2011)

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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## scratchee (Mar 2, 2012)

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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## benesailor (Dec 27, 2012)

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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## Skipper Jer (Aug 26, 2008)

"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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## tommays (Sep 9, 2008)

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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## bljones (Oct 13, 2008)

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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## pdqaltair (Nov 14, 2008)

SchockT said:


> 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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## benesailor (Dec 27, 2012)

Huh?


> nd 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.


Boats are NOT an investment. You should expect to lose money. Why would you go with a adjustable rate loan? Sailboat owners tend to own there boats a whole lot longer than powerboat owners. NOW is the best time to finance a boat loan as the rates are low and the market is prime!

I bought my boat when the market tanked. I had planned on paying cash for a much smaller boat. Then the market got flooded with used boats at fire sale prices. I jumped in with both feet. I haven't regretted it yet. I'm glad i did. I skipped the middle boat to my retirement boat at a great price/deal. 
If you are in the market for a retirement boat and your age and/or finances are in a comfortable place then i would say, jump in with both feet. No time like the present.


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## bljones (Oct 13, 2008)

benesailor said:


> Huh?
> 
> Boats are NOT an investment. You should expect to lose money. Why would you go with a adjustable rate loan?


See the title of the thread- if you are financing your boat with a household LOC or a home equity loan, or a refi, you are financing using an adjustable rate instrument if the amortization exceeds the term... as is likely the case with a larger boat carrying a larger loan.


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## HeartsContent (Sep 14, 2010)

I would say that a great many people would say that they perceive houses as a depreciating asset also. Loss in value, taxes and a whole host of costs makes houses questionable investments - in general.

My take is to buy cash and be ready to go cruising when we finally auger the economy in the ground. Otherwise you could be jobless, houseless and boat less! :O

If I borrowed, i would make sure that I had the ability to pay it off with other assets - just in case. 

Of course, if everyone thought this way there would be no crisis in the 1st place!




Jim


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## benesailor (Dec 27, 2012)

I see your point now. I don't think a adjustable rate anything at this point in time would be a good thing unless you could lock in at anytime. 
Looking at the crystal ball; this dream state that americans are seeing on loans and financing will come to an abrupt end and then we will all pay the price. Eventually we will have to pay the piper since we are living this socialist agenda. (like half of europe) Just my thoughts. I'M no financial gura as stated before.


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## benesailor (Dec 27, 2012)

> I would say that a great many people would say that they perceive houses as a depreciating asset also. Loss in value, taxes and a whole host of costs makes houses questionable investments - in general.


Essentially i'm paying cheap rent. (i lost no value in my house, at least not like boston,LA or las vegas)


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## bljones (Oct 13, 2008)

benesailor said:


> Eventually we will have to pay the piper since we are living this socialist agenda.


The housing bust had nothing to do with socialism, and everything to do with greed and instant gratification with no view of the long term consequences. Folks thought that if the bank said they could take out a 100% mortgage on a $250K house based on their $40K income because it will increase in value and their TDSR worked with the teaser rate, then what could go wrong?
Everything, it turns out.

BTW, the true socialist countries in europe, (germany, sweden, norway) did, and are, doing just fine.


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## tommays (Sep 9, 2008)

Being on my third home over the last 32 + years with all the movement being based on moving into the best public school district we could afford 

I hope we can see how sad the above truth is without going to the war room 

I have found private homes to be and excellent lifestyle choice

BUT if I start adding up the labor that makes Seafever look and afternoon project 

And the Roof and the cesspools and the windows and the siding and the fact that some of the stuff is already 14 years old again and I can see those ands being needed again 

Its kind of tough to call it a whole lot better than a boat or a good investment :laugher


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## Alex W (Nov 1, 2012)

Maybe time to move this thread to offtopic/politics?


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## SchockT (May 21, 2012)

HeartsContent said:


> I would say that a great many people would say that they perceive houses as a depreciating asset also. Loss in value, taxes and a whole host of costs makes houses questionable investments - in general.
> 
> My take is to buy cash and be ready to go cruising when we finally auger the economy in the ground. Otherwise you could be jobless, houseless and boat less! :O
> 
> ...


That has to do with your individual circumstances. Sure the house itself depreciates, but depending on where you live the land the house sits on may appreciate in value. My last house nearly trippled in value in the 10 years I owned it, and while my current house hasn't gained very much in the past 4 years, there is certainly no sign of any dramatic loss in value on the short term, and long term it is still likely to gain value. Around here real estate is a solid investment. Clearly that is not the case in some parts of the States, and in those parts, borrowing on your house would be ill-advised.


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## jameswilson29 (Aug 15, 2009)

HeartsContent said:


> I would say that a great many people would say that they perceive houses as a depreciating asset also. Loss in value, taxes and a whole host of costs makes houses questionable investments - in general


Only in the short run. In the long run, owning real estate as your principal residence in the U.S. has always been a good investment.

You have to live somewhere. You get deductions for Schedule A. It appreciates over time and is a good hedge against inflation.

There are limits on the deductability of mortgage interest beyond acquisition costs and the lesser of either Fair Market Value or $100K, with some exceptions for certain purposes. Consult your professional tax adviser before you borrow more.

I also disagree with the exclusive focus on your monthly payment amount; the total amount of indebtedness matters also and affects your ability to sell or refinance in the future and your personal balance sheet.


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## outbound (Dec 3, 2012)

Another factor is insurance. If you have no loan you can insure against what loses you want and go where you want. If you have loans then the bank may to some extent dictate where you go, when you go, and with whom on board ( may need a captain). Bank usually wants their asset insured.
At present have two boats with two loans. One is home equity ( the 34) and one a straight boat loan ( the 46). Both are well under 5%. Current return on investment is over 5%. Have equity to pay off both loans if necessary without penality. Therefore, given tax deduction on both loan assets and ~1-3% differential in the return from money compared with the cost of money makes sense to play with other people's money. As soon as return on investment falls bellow cost of money will pay off loans. As soon as loan officer limits my ability to do what I want will pay off loan. At my age age think of money as a tool no longer as something with instrinic value of and by its self. Never did a variable rate on anything ever in my life. That could only possibly make sense if you know you are going to bail out of the asset very quickly ( 1-2y) and you are not risk aversive.


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## SchockT (May 21, 2012)

I am amazed that interest paid on a yacht loan is tax deductible down there! What a ridiculous loophole! If your government really needs more tax revenue, they should be getting rid of stuff like that!


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## Skipper Jer (Aug 26, 2008)

A yacht can qualify as a home down here so the loan is consider a mortgage. 
The interest on a mortgage is tax deductible IF one itemizes instead of taking the 
standard deduction. Please don't give the blood sucking parasites any more ideas on how
to take our hard earned money and spend it such things as study the sex lives of snails or 
the private parts of ducks or to the UN or fighter planes to Egypt or buying Russian helicopters then giving the copters to the Afghans. We are 16 trillion in debt and sinking fast. I consider both parties to be the blood sucking parasites.I fear we will be the next Cypress or Greece.


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