Boat loan question for newbie

[valhalla360]

Originally Posted by mikedefieslife

That would all depend on the economics. I know this is more about the US, but in areas of Europe where interest rates are crazy low or even negative, it can be better to take a loan even if you have the cash.

e.g Take a 50,000 to cover part of the boat at 3.49%. Then stick your 50,000 cash in various investment and savings schemes. Should earn you an easy 5% interest. Result is you are better off.

This is something that UK university students were encouraged to do back during the old loans system. Even they didn't need a loan, they were better off taking the maximum available, and sticking it savings accounts as the interest rates were higher than the loan interest (which was set to match inflation).

The old leveraging plan (US, Europe or Mars, doesn't matter). Works great when the market is up but when the market drops, it multiplies the losses. The people suggesting this plan always ignore the downside risks.

But again, this wasn't the question.

[TrentePieds]

Why ask a bunch of people who couldn't possibly know your circumstances, and who probably shouldn't?

Why don't you ask a SOLID financial institution. For half a century I've been steering people away from what we Canadians call "charter banks", i.e. the main banking institutions. Those institutions' interests are NOT the same as yours - or mine :-) You have credit unions in the US also. Their interests ARE the same as those of their members. They offer the same services as charter banks.

If I were a US citizen with equity in real estate, I would, if the real estate were mortgaged with anything other than a credit union , transfer that mortgage away from whatever kind of institution held it, into a credit union. The CU might even offer you an incentive to do so.

Once the mortgage were with a CU, your equity in the property can be used for collateral on a loan of some kind, and there are many kinds. Hereabouts - Canada - a Line of Credit can be had for about 4% p.a. under those circumstances. Hereabouts - a major urban area with high demand and low supply of rental housing - the Return on Investment on low value rental properties is often 8%.

But don't take my word for anything. I just think, based on the manner in which you are asking the question, that you are barking up the wrong tree. Go talk to a competent Financial Advisor at a CREDIT UNION. NOT a bank, and not on the Internet :-)!

All the best

TP

[fdr14127]

I would establish a dialog with the mtg. lender before doing anything. In my case I was an employee of an un named large bank based in the orient, and as such I was priviledged to see three rate caps expire with no paperwork done. Since their mtg was local here in Buffalo I wondered in and saw the Div Manager and used the Donald's famous quote, 'your fired'. On a whim I rang up what is now Rocket Mtg, since they had the JD Edwards award and much to my astonishment they had paperwork done in a week. They also came up with some unique options I had not considered. (they were happy to take advantage of my Vetran's status)...They are computer guys and unfettered by tradition Mortgage Lender thinking. And yes we did dicuss Trawler financing, their take was a Home Improvement addon which beats Marine rates. They would treat it like a leisure second home deal......just sayin....they should be added to Tim O'Reily's new book 'WTF' as an example of the new order of things...

[Jetx]

Originally Posted by TrentePieds

Go talk to a competent Financial Advisor at a CREDIT UNION. NOT a bank, and not on the Internet :-)!

I'd be cautious about this. While it's true that credit unions themselves are non-profit (and can often offer you a better deal, since they don't have a profit-seeking shareholder to satisfy), they very often employ financial advisors who are registered as brokers. That means the advisor is very likely compensated, at least partly, on a commission basis, which, in turn, means that he/she does have a profit (or sales) motive, and his/her interests may not be aligned with yours.

I'm not saying you shouldn't work with a credit union advisor, but be cautious and do your homework. It's easy to think that since they're affiliated with a credit union, that they're "the good guys". But that's not always the case. Find out how they're registered and compensated. Or avoid the issue altogether and ask if they're a fiduciary. If not, find an advisor who is.

[jmschmidt]

There is no way to sell a house or any real estate with a loan on it unless the buyer agrees to assume the loan and the lender agrees to let you off the hook. The buyer would have to meet the lender's current loan qualification to assume of the loan.

[TrentePieds]

Quote: " That means the advisor is very likely compensated, at least partly, on a commission basis, which, in turn, means that he/she does have a profit (or sales) motive, and his/her interests may not be aligned with yours."

Of course! Goes without saying that you ALWAYS check these sorts of things. We've recently had a royal stink in Canada because even lowly TELLERS at charter banks, so they say, are required under pain of dismissal if they do not meet "performance targets" set by management, to "up-sell" people who come in for a perfectly routine transactions.

There are always differences between the legislation of different jurisdictions, so it would surprise me not at all if CU personel, where you are, is under similar pressure.

One of the horses I've been flogging for half a century is that anyone seeking the "help" of a professional (doctor, lawyer, financial advisor, accountant, etc, etc) should know as much about the specific problem at hand as does the professional. Otherwise the client is not able to monitor, supervise and direct the professional adequately and appropriately. Professionals should be considered well paid errand boys :-)

You will find that sentiment reflected in many posts on CF dealing with the employment of surveyors :-)!

Obviously there can be situations when a cautious first approach develops into a relationship of trust. For me, relationships with the charter banks (qua biodies corporate) have never so developed.

TP

[Dave22q]

Generally houses appreciate and boats depreciate. Lenders know this. If you find any foolish enough to give you a home mortgage level rate, grab it. Boat loans tend to be priced more like car loans and most lenders will not deal with old boats. Of course, if you have great personal credit, that can make a big difference. If the boat is not a major share of your assets they will tend to price more like any secured personal loan.

[cyan]

Originally Posted by TrentePieds

If I were a US citizen with equity in real estate, I would, if the real estate were mortgaged with anything other than a credit union , transfer that mortgage away from whatever kind of institution held it, into a credit union. The CU might even offer you an incentive to do so.

Once the mortgage were with a CU, your equity in the property can be used for collateral on a loan of some kind, and there are many kinds. Hereabouts - Canada - a Line of Credit can be had for about 4% p.a. under those circumstances. Hereabouts - a major urban area with high demand and low supply of rental housing - the Return on Investment on low value rental properties is often 8%.

FYI...

Mortgages are often sold to 3rd parties in the US by both credit unions and banks. (though this must be disclosed in the book full of paperwork that nobody fully reads before signing) Your friendly US credit union may very well sell your mortgage to suit their needs, without any say from you. You only have a say if the contract indicates as such. (rare)

A home equity line of credit (HELOC) is available at either a bank or CU. In the US, a local small bank often provides the personal touch of a CU.

A HELOC is probably a bad idea for a boat. It works better for small or multiple expenses as a revolving line of credit. However, it will have a variable interest rate tied to the prime. (probably going up from current historic lows)

If you really wish to use home equity, a cash-out refinance or fixed-rate 2nd mortgage makes more sense for a boat. Lock in current (low) rates, and still deduct the interest. (or at least until the laws change)

-Cy

[DotDun]

Originally Posted by TrentePieds

Why ask a bunch of people who couldn't possibly know your circumstances, and who probably shouldn't?

Why don't you ask a SOLID financial institution. For half a century I've been steering people away from what we Canadians call "charter banks", i.e. the main banking institutions. Those institutions' interests are NOT the same as yours - or mine :-) You have credit unions in the US also. Their interests ARE the same as those of their members. They offer the same services as charter banks.

If I were a US citizen with equity in real estate, I would, if the real estate were mortgaged with anything other than a credit union , transfer that mortgage away from whatever kind of institution held it, into a credit union. The CU might even offer you an incentive to do so.

Once the mortgage were with a CU, your equity in the property can be used for collateral on a loan of some kind, and there are many kinds. Hereabouts - Canada - a Line of Credit can be had for about 4% p.a. under those circumstances. Hereabouts - a major urban area with high demand and low supply of rental housing - the Return on Investment on low value rental properties is often 8%.

But don't take my word for anything. I just think, based on the manner in which you are asking the question, that you are barking up the wrong tree. Go talk to a competent Financial Advisor at a CREDIT UNION. NOT a bank, and not on the Internet :-)!

All the best

TP

Getting a Line of Credit as a second mortgage has no bearing on whether the first mortgage is held by a chartered bank or credit union. A second mortgage is the same with both, no magic offerings from a credit union.

[TrentePieds]

Yes, as I said, governing legislation differs twixt jurisdictions. As many of you will already know, I think it is a very bad idea to "invest" more money in a boat than you can walk away from with a smile on your face if walking away should become necessary for some unforeseen reason. And ultimately any boat owner WILL walk away from part, at least, of the "investment" because boats depreciate. Owning a boat is, when all is said and done, a CONSUMPTION expense. No reason you should not bear such an expense - if you can afford it. Borrowing by any device to bear consumption expenses is, IMO, never sound policy.

I've chosen to "cover off" the boat expenses by holding real estate yielding a sufficient ROI to have recovered the cost of acquisition cost of TP plus the ownership and operating costs over the five years that we have owned her. I doubt that that could be done if my home base was Flint, MI, but I am fairly sure that it could be done if my home base was Seattle, WA.

TP

[h2uhoh]

Originally Posted by fdr14127

On a whim I rang up what is now Rocket Mtg, since they had the JD Edwards award and much to my astonishment they had paperwork done in a week. They also came up with some unique options I had not considered. (they were happy to take advantage of my Vetran's status)...They are computer guys and unfettered by tradition Mortgage Lender thinking.

Rocket mortgage is just quicken loans (look right under their logo and it will say quicken loans). Definitely a traditional mortgage lender. And one of the more costly at that. Any of the big name lenders have huge margins built into their rates. I love coming across clients working with quicken/rocket mtg. I know I can offer the same rate at about 30% of the cost, especially when it comes to veteran loans.

[leboyd]

Originally Posted by Dogscout

...
I am retired and 53 years old so my income is now just my company pension which is actually less than my monthly expenses.

... that some of my investment assets are excluded because they are IRA's that I can't touch without penalty until age 59.5.

Actually, you can access your IRA without penalty. Take a look at the 72(t) option. If your SEPP is higher than you want to withdraw, you can open a second IRA with the lower principle amount that produces your needed withdraw.

While there are many calculators on the web, as always, I recommend finding an advisor in your area to help with the decision. As with all tax-deferred money, there are "gotchas" of which you need to be aware before deciding whether a 72(t) option is right for you.

[surf_sail]

Originally Posted by mikedefieslife

That would all depend on the economics. I know this is more about the US, but in areas of Europe where interest rates are crazy low or even negative, it can be better to take a loan even if you have the cash.



e.g Take a 50,000 to cover part of the boat at 3.49%. Then stick your 50,000 cash in various investment and savings schemes. Should earn you an easy 5% interest. Result is you are better off.



This is something that UK university students were encouraged to do back during the old loans system. Even they didn't need a loan, they were better off taking the maximum available, and sticking it savings accounts as the interest rates were higher than the loan interest (which was set to match inflation).

This has been said before, but so many people have this (in my opinion silly) point of view I think it needs saying again.

If you can get a 3.49% yielding NO RISK investment take it! The "risk free" rate was bumped up today to 1.5%. In comparison 3.5% risk free would be a great deal. Choosing not to pay 3%+ to take a loan and funding the purchase with other assets is a completely risk free "investment". The "5%" you get in the market is very far from being risk free and is a whole different animal. Choosing between the two should really be a no-brainer. BTW, I fully support having a diversified long term portfolio invested and even moving up the risk curve. But please take the easy pickings first (pay down loans, or don't take them in the first place)

Of course I'm also in the camp of if you need a loan you should get a smaller boat, but I guess some people want to add stress to their lives more than I do.

[TrentePieds]

Interesting drift, this has taken :-)

There once was a man - a "self-made man", a true American success story, another yottie - who lived by the maxim "borrow every penny you can - but repay promptly!". This man started his working life as an errand boy for the pimps in the port of Piraeus. As a yottie, he was on the dark side. His boat started life as HMCS Stormont, though in his ownership she was called Christina. If memory serves, his wife's name was Jackie.

Now he, of course, never borrowed for consumption purposes. He only borrowed to invest in productive assets, and by the time he bought Stormont and refitted her, he could do so with the loose change in his pocket, giving it no more thought than I have to give to tootling down to the grog-shop for a boggle of Jameson's :-)

I'll give you three guesses as to his name. If you are right the first time, you get a bonus guess ;-0)!

Cheers

TP

[surf_sail]

Yes serious thread drift now...

However, the advice of "levering up" your investments is a very different animal if you're talking about the average person's retirement savings versus investing and levering up a business. First and foremost a business is almost always in the form of a limited liability entity so you can stiff your creditors if things go sour (I'm sure the person in your story did that). You'll find that approach much more unpleasant if your retirement savings (productive assets) sink and you no longer wish to repay your boat loan.

I don't have a guess. Sorry