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20-03-2012, 13:48
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#1
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Registered User
Join Date: Feb 2012
Location: San Diego, CA
Boat: Cheoy Lee 41
Posts: 82
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Should I Pay Off My Boat Before Cruising?
Hi cruisers,
I want your opinion on whether I should have my boat completely paid off before I go cruising.
Here's my backstory. My wife and I just bought a Cheoy Lee Offshore 41 for $40,000 in Annapolis, MD and paid to ship it to San Diego, CA. My monthly payments are $387 a month for 120 months. I can have the boat paid off by my departure date of July 2014 if I pay $1240 a month.
I'm not overly concerned about the interest because since the boat is my primary residence the interest can be taken off my taxes.
Are there any benefits to having the boat paid off before I go cruising, or is it better to just put the money in an account and have the bill paid automatically each month?
__________________
Invest in experiences, not things.
https://AboardAstraea.com
A growing family's life aboard a Cheoy Lee 41
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20-03-2012, 14:09
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#2
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Registered User
Join Date: May 2005
Location: Cruising Greece
Boat: Cat in the med & Trawler in Florida
Posts: 2,323
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Re: Should I pay off my boat before cruising?
Maybe you should ask your accountant this -
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20-03-2012, 14:12
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#3
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Senior Cruiser
Join Date: Mar 2010
Location: gettin naughty on the beach in cornwall
Boat: 63 custom alloy sloop,macwester26,prout snowgoose 37 elite catamaran!
Posts: 10,594
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Re: Should I pay off my boat before cruising?
go sailing now,the world is ending on the 12/12/12
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20-03-2012, 14:13
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#4
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Registered User
Join Date: Aug 2009
Location: Boston, MA
Boat: Beneteau Oceanis 43 & S2 6.9
Posts: 969
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Re: Should I pay off my boat before cruising?
Tax implications aside, if the money you borrow costs you less interest than you could make if that same money was in another place, then it makes sense to keep it.
If however you could pay it off and make more interest on your money, then paying it off would make sense. This once was a no brainer, but with today's low interest rates, it's not anymore and could likely make more sense to keep the loan.
Just my 2 cents..
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20-03-2012, 14:18
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#5
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֍֎֍֎֍֎֍֎֍֎
Join Date: Apr 2006
Posts: 15,136
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Re: Should I pay off my boat before cruising?
"Are there any benefits to having the boat paid off before I go cruising,"
Only one, you'll have one less bit of paperwork and bill paying that can get screwed up.
As to whether it "pays" to pay it off, you'll have to run the numbers or have an accountant do that for you. What you can get on investment return now, versus the effective after-tax interest rate you're paying on your boat loan. And the third option, which is to pay the monthly note, INVEST all the rest at a higher rate if you can, and then think about paying the boat off in one lump sum before you go. Assuming there's no pre-payment penalty on the boat loan, which there might be.
Run the numbers, or ask an accountant.
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20-03-2012, 14:21
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#6
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CLOD
Join Date: Jul 2007
Location: being planted in Jacksonville Fl
Boat: none
Posts: 20,415
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Re: Should I pay off my boat before cruising?
Quote:
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.
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So ................. you are ONLY losing around 85% of the interest paid with the income tax deduction! Tell you what; give me $100 and I will give you $85 back as that is the same thing.
The only way around this is if the principle balance of the loan can make a higher rate of return on investment that the interest rate of your loan.
Pay the thing off if you are able!
__________________
Don't ask a bunch of unknown forum people if it is OK to do something on YOUR boat. It is your boat, do what you want!
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20-03-2012, 14:23
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#7
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Registered User
Join Date: Feb 2012
Location: San Diego, CA
Boat: Cheoy Lee 41
Posts: 82
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Re: Should I pay off my boat before cruising?
Wow, thanks for the fast replies! I have opened a mutual fund for my cruising kitty that's based on bonds and should outperform my savings account. I could dump over $800 a month in to that and then if the historical return continues (ha, I lost $80 since I opened the fund a month ago) I could be in much better shape.
I'm in the navy, so I don't have an accountant, but maybe I should ask my Mom since that's her line of work.
__________________
Invest in experiences, not things.
https://AboardAstraea.com
A growing family's life aboard a Cheoy Lee 41
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20-03-2012, 14:45
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#8
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Registered User
Join Date: Jul 2008
Location: Maryland
Boat: Valiant 42
Posts: 284
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Make ur regular payment, then put the rest directly on the principal. You will pay it off in half to one third the time. The interest compounds on the principal. Reduce the principal, reduce the interest.
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20-03-2012, 15:00
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#9
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Registered User
Join Date: Mar 2006
Location: Nevada City. CA
Boat: Sceptre 41
Posts: 3,857
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Re: Should I pay off my boat before cruising?
I'm of a different mind on this one. I say it is better to have the cash in hand then to increase your payment. $387 a month translates into a 3% interest rate. You are starting off with a payment that is almost 2/3 principle. I would rather have the extra $800 a month set aside in a cruising kitty. The reason is that you may come across a need for that money and it won't be so easy to get it back once it has been paid. Over the course of 10 years you will be paying ~$6500 for the use of the money. That is $54 a month. Lets say you need a new sail or run across some other emergency where are you going to get the funds? Saving $800 a month for two years you will have over $19k in your fund. At that time if you have other money set aside then you can pay the principle down. $54 a month is not enough of a savings to entice me to pay off an asset.
__________________
Fair Winds,
Charlie
Between us there was, as I have already said somewhere, the bond of the sea. Besides holding our hearts together through long periods of separation, it had the effect of making us tolerant of each other's yarns -- and even convictions. Heart of Darkness
Joseph Conrad
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20-03-2012, 15:03
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#10
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Registered User
Join Date: Aug 2011
Location: Iceland
Posts: 53
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Re: Should I pay off my boat before cruising?
The only thing that is worse than owing money, is owning it.
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20-03-2012, 15:07
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#11
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Registered User
Join Date: Jul 2009
Location: Lviv, Ukraine
Boat: Ohlson 38
Posts: 691
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Re: Should I pay off my boat before cruising?
...and that is why I pay cash for everything. Cars, boats, vacations, everything.
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20-03-2012, 15:12
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#12
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CLOD
Join Date: Jul 2007
Location: being planted in Jacksonville Fl
Boat: none
Posts: 20,415
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Re: Should I pay off my boat before cruising?
Charlie - that's what credit cards are for. Instead of paying interest on the boat loan (lose money) just to have and hold it "in case"; keep the lost money (interest) and have a plan to buy the "in case" things.
This of course is my opinion and I understand the other point of view. I like seeing my savings account grow at 0.8% interest while I at the same time I spend 6% on boat loan instead. I KNOW that is stupid but have a hard time stopping myself. Then I say to myself........... hey that's $30,000 dollars!
__________________
Don't ask a bunch of unknown forum people if it is OK to do something on YOUR boat. It is your boat, do what you want!
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20-03-2012, 15:20
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#13
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Moderator and Certifiable Refitter
Join Date: Jan 2008
Location: South of 43 S, Australia
Boat: C.L.O.D.
Posts: 20,396
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Re: Should I pay off my boat before cruising?
Quote:
Originally Posted by n8kraft
..........
I'm in the navy, so I don't have an accountant, but maybe I should ask my Mom since that's her line of work.
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Hmm... perhaps a very good idea.
FWIW, my Mum (Mom?) would have told me very simply "Don't owe money if you can possibly avoid it".
She would have also said stuff along the lines of: it limits your freedom when you are obligated to another, it prevents you taking advantage of unknown future changes, money is tool for living not a reason to live and such like. Yes she lived in a different era but maybe the philosophy remains valid - I like to think so.
__________________
All men dream: but not equally. Those who dream by night in the dusty recesses of their minds wake in the day to find it was vanity: but the dreamers of the day are dangereous men, for they may act their dreams with open eyes, to make it possible. T.E. Lawrence
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20-03-2012, 15:44
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#14
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Registered User
Join Date: Jul 2006
Location: Massachusetts
Boat: Finnsailer 38
Posts: 5,277
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Re: Should I pay off my boat before cruising?
The one big issue I can see with continuing the boat loan is you will find it difficult and expensive to carry comprehensive insurance coverage on an older boat going cruising far afield. On a boat at that price I would normally skip the comprehensive insurance, and maybe get liability only, saving at least $1000-2000 per year, particularly if you are leaving the USA.
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20-03-2012, 15:47
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#15
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Moderator Emeritus
Join Date: Jul 2010
Location: Key West & Sarasota
Boat: Cal 28 "Happy Days"
Posts: 4,210
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Re: Should I pay off my boat before cruising?
Not to mention a loan begets insurance, insurance dictates where and when you can sail, I am in the pay off the boat and use a credit card IF an emergency arises
__________________
Any fool with a big enough checkbook can BUY a boat; it takes a SPECIAL type of fool to build his own! -Capngeo
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