Home equity line of credit vs. Boat Loan - Advice Please...

Alex F

Alex F

Well-Known Member
Nov 14, 2006
9,166
Miami / Ft Lauderdale
Boat Info
2005 420DB with AB 11 DLX Tender, Raymarine Electronics (2x12" MFDs) with Vesper AIS
Engines
Cummins 450Cs, 9KW Onan Generator, 40HP Yamaha for tender.
While we’re looking to upgrade, I’m thinking of financial options. We have a home equity line of credit that we can use. But, I’m trying to determine if I’m missing any advantages (if any) offered by boat loans. The way I see it, with HELOC I have all the freedom, no application fees and hasles, write of the interest looks not too complicated. The only thing I’ve noticed that boat loans have slightly (.25 %- .5%) rate. But, I think that write offs are not as simple.

Can you share your financial experience, tips and trick I may be unaware of.

Thanks,
Alex.
 
I seem to recall some income tax implications surrounding interest deductions when you use a home equity loan for purchasing a boat. You might want to look into that and also check to see if there is any tax advantage to using regular financing.
 
A home equity loan is a 2nd mortgage on your home. You are gaurenteeing the loan with your house.

For all they care, you can go to Atlantic City with the money.

I "think" tax-wise advantages of Home Equity vs Boat loan are identical. The main thing you have to worry about is if you hit the AMT limit sometime in the next few years, and suddenly deductions no longer mean what they did before.
 
I seem to recall that a home equity loan used for a boat will not qualify the boat for the second home mortgage interest deduction on your federal income tax. Maybe we have a CPA lurking out there in digital land that can confirm this, but I think I am right. If I am not, I am sure I'll hear about it!!! :grin:
 
If you finance your boat with a HELOC, you can write the interest off no matter what. I used to finance cars with our HELOC and wrote the interest off. Now that we have a express cruiser, I can write the interest off no matter waht, so we financed because we could get lower interest that way. HELOC is a great way of financing our disaster protection.
 
Right. If you take out home equity loan, you can't claim a mortage deduction for the boat. That is because you don't have a mortgage on the boat.

Some stuff here: http://www.realestateabc.com/taxes/deductible2.htm

Bottom line: Home Equity debt is deductible upto a loan value of $100K. Home Equity + Mortgage debt deductible upto market value of home.

BTW: If you have more than two homes, things get a bit squirly in the deduction department. A boat would could as one of the two homes.
 
Personal opinion here, but I'd never risk my house for any purchase no matter how low the interest rate can be on a HELOC. You can still get a great fixed rate on a boat loan, and fully deduct the interest if your boat qualifies as a second home (cabin, galley,head). Especially on a depreciating asset like a boat, to increase your debt on your house would not in my opinion be a prudent idea.
 
Barry's comments have some merit. If, however, you feel very comfortable with your finances, job security, national security... and you're just looking for the best/easiest way, you have several options.

Having been an airline pilot who was on top of the world six years ago without a worry in the world, who subsequently took a 43% pay cut and lost his defined benefit retirement plan, and who is still working 2 jobs (Air Nat'l Guard) well past the intended time frame, I absolutely never say never anymore.
 
If I am not mistaken, you cannot use the interest on a home equity loan as a deduction in any Alternative Minimum Tax computations.
 
As a Bankruptcy Attorney, I can say that you never, ever, ever, ever want to use your home as collateral for any purchase. Period. (':smt021') Anything of any consequence happens to that boat that insurance doesn't cover or if there is some adverse effeect on your income, you will likely lose the house (never mind the boat). Assuming that is your home, you are on the street. Plain and simple.

The biggest mistake any of my clients make, whether they are buying a used car on the home equity or financing a $7 million home, is that they never think that the future will bad. That lack of planning makes you one of my clients.

If you have to worry about the tax inplications of a boat loan versus a home equity loan because paying taxes is so important to you then you either should not be buying a boat or you can pay cash - both are better options.

Take the boat loan, secure it by the boat, insure that sucker to the hilt and take real good care of it. We all know that a boat is a hole in the water in which you throw your money. Another penny on boat interest is a small price to pay.

Otherwise, call me in a few years - I'll give a discount to CSR members.(':wink:')

Gene
 
RubberDuckeeToo2 said:
As a Bankruptcy Attorney, I can say that you never, ever, ever, ever want to use your home as collateral for any purchase. Period. (':smt021') ......
Click to expand...

I'm a little nieve here......I'm also not getting an equity loan.....BUT....it seems to me that you are simply saying NEVER get an equity loan....

No matter what you purchase with the equity loan....a vacation, a boat, your kids education....if your financial situation changes, and you can't make the payments....you lose the house....

Am I missing something.... :smt017
 
Are you sure your assets are protected by segmenting what secures what loans? Let's say you go out and get a 300K boat loan and you default on it... Can't they still come get your other assets via a judgment when the boat doesn't cover the loan (and plenty of BS fees)? I'm pretty sure it takes a lot more estate planning than just segmenting what collateral secures what loans all under your name.
 
osd9 said:
RubberDuckeeToo2 said:
As a Bankruptcy Attorney, I can say that you never, ever, ever, ever want to use your home as collateral for any purchase. Period. (':smt021') ......
Click to expand...

I'm a little nieve here......I'm also not getting an equity loan.....BUT....it seems to me that you are simply saying NEVER get an equity loan....

No matter what you purchase with the equity loan....a vacation, a boat, your kids education....if your financial situation changes, and you can't make the payments....you lose the house....

Am I missing something.... :smt017
Click to expand...

Get a home equity loan to do home improvements which increase the value of your home, without question. We did when we didn't want to lose our 4 3/8 fixed rate home loan, but we wanted to take advantage of some of the equity to improve the home. We did this in place of buying the "Captain's house" (airline term for a guy whose future is sooo bright that he buys/builds waaayyy more house than he needs or can afford).

Then, a few months later, came 9/11/01, and my occupation tooka dive. We kept the house, the kids, and the boat.
 
Hampton said:
.....Get a home equity loan to do home improvements which increase the value of your home, without question. ........
Click to expand...

I'm still not getting the logic. If you can't make the payments, you still lose the house, or, at the very least are forced to sell. And, in the current housing economy....that increased value could be partially, if not totally lost in the market decline.....
 
Sort of. Even in a depressed market, you should be able to expect to get more out of a bigger/better house, hopefully enough to cover your loans. If you cover your loans, you move into another home which is more in line with your income.

If that money is sitting in lost value (depreciation) of a brand new boat or car, then you are much less likely to be able to get out of your purchases with your credit intact. No credit, no new house - aka "Out on the street."

Also, money spent improving your home will normally be a valid investment with immediate payout capability (aka flipping).

Besides, it's not about you, it's about your lender.
 
Hampton said:
Sort of. Even in a depressed market, you should be able to expect to get more out of a bigger/better house, hopefully enough to cover your loans. ..........
Click to expand...

I'm thinking that SHOULD and HOPEFULLY aren't good enough here.....kind of like the commercial with the 600lb gorrilla...what do I know...I'm just an engineer...
 
Applying a HELOC to home improvement is simply as conservative as it gets. There are no guarantees in life. When we took out our HELOC, the total loan was still below 80% in a booming local economy. Now, just 4 years later, they total less than 50% of the the corrected home value (5 - 10% off peak).

We weren't trying to guarantee success, just provide advise regarding the full spectrum of loans.
 
Yeah baby!!!! Let's start up the "you should be thankful for what you have" and "CSR financial management" class.

Let the games begin!
 
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