Should I Pay Off My Boat Before Cruising?

[tropicalescape]

Originally Posted by Azul

Sometimes your plans don't work out the way you think they will (say, wife gets sick of cruising, leaves with kids, now you have an unpaid for boat to sell at 75% discount to pay alimony/child support....) Also, when you have "disposable income" from not paying off the boat you will be tempted to make frivolous choices like SSB, marinas, shipping boats coast to coast instead of things that might be more important to the family... Accountants will almost never tell you to simplify your lifestyle, I don't know why. I have run into one of those "gee I never would have guessed that could happen situations" personally and wish I had back some of the money I spent in my conspicuous consumer days on boats, women and airplanes. But then I probably would just spend it again on boats, women and airplanes ha.

Blue ,I can relate to the boats ,women and airplanes!I have at least 8 different aircraft,one woman and one boat...never can have too many airplanes,can certainly have too many women!all I need is the one boat and it is paid free and clear,I am 47 yrs. old ,never had any credit and the one time that I wanted credit I was 38 yrs. old...The lady at the bank said I would have been better off with bad credit rather than NO credit! I always pay for what I want with cash or some kind of barter...so my answer is pay it off if you can...

[rtbates]

I would.

[svBeBe]

Yes, yes.

[Lake-Effect]

As others have mentioned, it's your overall debt picture that will determine the best course. If you CAN pay the boat off... pay it off. No sense paying interest. Also, wouldn't both the loan-holder and insurer put requirements and restrictions on your cruising activity? eg You can't go to country X, you must carry such-and-such insurance... etc.

Originally Posted by n8kraft

I'm not overly concerned about the interest because since the boat is my primary residence the interest can be taken off my taxes.

(small derail, not intended to start anything)

When we were house-hunting, I was of course insanely jealous that in the US, mortgage interest is tax-deductible, whereas in Canada it isn't. Nonetheless, we bought a house, and now have just about paid it off, including substantial renovations. Yay us.

It's now apparent that mortgage interest deductability is one of the factors that inflate housing bubbles, and I can't imagine how it can be continued indefinitely in a weak economy. The fact that you can deduct interest on a boat if it is your primary residence?... (my head explodes) ...SWEET.

Anyway, with that in your favour, and other finances permitting, it seems like it 's very feasible for you to be out cruising fulltime. Go for it and good luck.

[Azul]

Originally Posted by Lake-Effect

As others have mentioned, it's your overall debt picture that will determine the best course. If you CAN pay the boat off... pay it off. No sense paying interest. Also, wouldn't both the loan-holder and insurer put requirements and restrictions on your cruising activity? eg You can't go to country X, you must carry such-and-such insurance... etc.



(small derail, not intended to start anything)

When we were house-hunting, I was of course insanely jealous that in the US, mortgage interest is tax-deductible, whereas in Canada it isn't. Nonetheless, we bought a house, and now have just about paid it off, including substantial renovations. Yay us.

It's now apparent that mortgage interest deductability is one of the factors that inflate housing bubbles, and I can't imagine how it can be continued indefinitely in a weak economy. The fact that you can deduct interest on a boat if it is your primary residence?... (my head explodes) ...SWEET.

Anyway, with that in your favour, and other finances permitting, it seems like it 's very feasible for you to be out cruising fulltime. Go for it and good luck.

Last time I checked even second homes (ie vacation homes) qualify for the deduction, including boats if they meet certain minimal criteria, like a galley and head and you spend at least two weeks a year onboard. This is part of why the US has such massive debt, but I digress.

Usually in situations like this it isn't the outlay it's the upkeep that's the downfall. Unless a person has an iron-clad (eg trust fund) income stream it is a calculated risk to purchase a depreciating asset with a loan.

[Lake-Effect]

Originally Posted by Azul

Last time I checked even second homes (ie vacation homes) qualify for the deduction, including boats if they meet certain minimal criteria, like a galley and head and you spend at least two weeks a year onboard.

What?!? ngggnnnngh....

(my head explodes TWICE in same thread. A new record.)

[Captivy]

Originally Posted by Ex-Calif

Bank of America is the one with 100 story building, not me. .

Amen!

[zUrchin]

With interest rates as low as they are now and the fact that it is tax deductible in the US? FWIW...

The advantage of the mortgage on the boat and the tax deductibility (new word) of it would certainly depend on how much that deduction really benefits you. This would be based on your income in the first place. If your income drops because you are now on a long term cruising mode, the tax deductability benefit also diminishes substantially.
That's from a financial analysis perspective.

However, most people to do not have the discipline (including me) to put every penny I make to good use and more frequently than I'd like to admit wind up spending on unnecessary things.

In the end from my perspective based on my self awareness, I know I am better off eliminating or reducing my debts as much as practical.

Perhaps if one takes the middle-of-the road approach an option would be to reduce the amount of the mortgage loan you take, have some extra money for the cruise - but not too much. This will help ensure you still maintain a high credit rating (which can help in financial emergencies and life's curve balls), and some tax deduction benefits.

There's no perfect answer to this question and individually we all have to take responsibility for the choices we ourselves make.

[capn_billl]

Originally Posted by Doodles

From a strictly numbers point of view it just depends on what you would do with the funds if you didn't pay down the debt. Lets assume you have a 6% loan and the effective rate after the tax savings 4-5% depending on your tax situation. If you can invest the funds at a rate higher than the 4-5% after taxes then you are better off keeping the loan and investing the money; otherwise, paying down the debt is the better deal.

Obviously this approach ignores the psychological aspects of being debt free which may be a greater motivation as many have suggested.

Great advice if you can find me an absolutly safe investment, (like a CD or safer), that pays 6%.

No...I didn't think so.

Put that money in an investment, then in a few years you can have both the loan, AND the losses from when the investment crashes.

[belizesailor]

Originally Posted by tropicalescape

....The lady at the bank said I would have been better off with bad credit rather than NO credit! I always pay for what I want with cash or some kind of barter...so my answer is pay it off if you can...

Funny how our credit system works isn't. I've run into the same problem. No or limited debt history makes them really suspicious. Debt is now more real in the USA than capital...and we wonder why the economy is so screwed up.

I was once given a less then perfect credit score (still quite high, but not "perfect") despite there being no hard evidence to the contrary. Turns out the lack of evidence (good or bad) made them adjust my score down a touch.

[capn_billl]

Actually the interest rate deduction sounds a lot better than it is.

In most cases you have to spend $3 dollars in interest to deduct $1 dollar in taxes.

[belizesailor]

Originally Posted by tropicalescape

Blue ,I can relate to the boats ,women and airplanes!I have at least 8 different aircraft,one woman and one boat...never can have too many airplanes,can certainly have too many women!....

As the saying goes: "If if flies, floats, or F**'s, rent it don't own it!"

[Azul]

Originally Posted by belizesailor

As the saying goes: "If if flies, floats, or F**'s, rent it don't own it!"

Yes, the three F's. It takes roughly 300 flying hours per year to make owning an airplane logical vs renting and the average pilot flies about 80. A boat is always a bad investment maybe even if you are living on it, and don't get me started on how much per pop my trophy supermodel size 0 ex wife cost me!

[Stu Jackson]

The mortgage deduction didn't create the housing bubble. The "banksters" did. The real world comparison is this: you rent, you pay X amount per month and get nothing in return. You buy and sometimes even pay the same amount or a tad more plus you get to deduct some of it from your taxes. It encouraged housing construction, sure, but it didn't create the bubble, becuase that deduction has been around a loooong time.

[zUrchin]

Originally Posted by capn_billl

Actually the interest rate deduction sounds a lot better than it is.

In most cases you have to spend $3 dollars in interest to deduct $1 dollar in taxes.

Well said.

The beneficial impact of tax deductible item varies as it goes through all the smoke and mirrors of complex IRS formulas. It not the same as a tax credit where the actual amount (1:1) is removed from the income tax owed.