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

Ok, just to chime in a bit further;

1) Don't lose site of Alternative Minimum Tax. Being single, or married with two high incomes, you hit that surprisingly quick. Give it five or ten years . . .basically EVERYONE will be in the AMT range, and we will finally have the "flat tax" that some pine for.

Why do I bring this up? Because once you hit AMT, incremental deductions disappear. Home loan, boat loan, real estate tax deductions all get capped.

2) To finance a boat with a Home equity loan, boat loan, or CASH is a financial choice.

A few years ago, the home equity loan was an obvious choice because of lower rate AND better terms. Today. .. it sounds like the flexibility of the home loan comes at a slight price premium. Tax implications (assuming you don't hit home equity limits) of home equity vs boat loan are EQUAL. So what is the flexibility worth to you?

Paying cash is also a choice (hopefully). Leaving the money in the bank is a smart choice *IF* your investments will earn more than the loan would cost you. A 10% investment with 7% loan is a good deal. A 10% investment with a 7% *deductible* loan is better.

Of course, the fun REALLY starts if your 10% investment turns into a *negative* 20% investment.

3) Bottom line is that buying a boat is an expense. A house is an investment. Of course, an home investment can still go sour; and you can lose money. But a boat is an expense. You are *GUARENTEED* to lose money.

When making a choice like a boat. . .you MUST be careful. Your financial house had BETTER be in order. It doesn't matter how you finance the boat. If you lose your job, you MUST have a backup plan. In most cases, that plan will involve selling the boat AT A LOSS.

Dominic is right. If you are having trouble making ends meet. . .you are going to ditch the boat. It doesn't matter how you paid for the boat. . . you will attempt to get cash out of it to save the house.

If things are a bit dodgy now. . .when times are good. . .you are in real trouble.
 
osd9 said:
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....
Click to expand...

comsnark said:
Ok, just to chime in a bit further;

3) Bottom line is that buying a boat is an expense. A house is an investment. Of course, an home investment can still go sour; and you can lose money. But a boat is an expense. You are *GUARENTEED* to lose money.
Click to expand...

A HELOC (home equity line of credit) is a second mortgage on your home. It is secured by the home, not the boat. So if you lose the boat for some reason, the loan remains. If you have a boat loan and something happens, there still may be a deficiency, but many states have home exemption laws which protect the unborrowed home equity, leaving something sacred for when times really go bad.

AMT or not, it is never good "life planning" to live your life by "tax planning". You can take a second home deduction on a boat that has living quarters, a head and a galley. So get a boat loan, take the second home deduction. No matter how you calculate it, the difference in taxes isn't worth losing the roof over your head. A house may be an investment, but more importantly, it is also a place to live.

Gene
 
Just remember one thing when you take out any type of loan....we have a fellow Sea Ray owner that has a 370. Remember what he does for a living..................bankruptcy.
 
RubberDuckeeToo2 said:
A HELOC (home equity line of credit) is a second mortgage on your home. It is secured by the home, not the boat. So if you lose the boat for some reason, the loan remains. If you have a boat loan and something happens, there still may be a deficiency, but many states have home exemption laws which protect the unborrowed home equity, leaving something sacred for when times really go bad.
Click to expand...

Is that really applicable? Would you really default on the loan?

If the boat sinks -> and you stop making payments -> won't the bank sue you? Maybe they can't take your house. . .but they can get any other asset you have as you travel the road to bankrupcy, right?

When we are talking about big expensive boats, if something happens you count on insurance picking up the tab. If insurance doens't work. . .I bet most people would chose NOT to default and ontinue payments while sueing the insurance company.

Doesn't the same apply if your house burns down? If the insurance won't pay up. . .won't the bank sue you to get every penny of your other assets? And you WILL settle the debt if you have a choice, right?

AMT or not, it is never good "life planning" to live your life by "tax planning".
Click to expand...

True. But in this case, we are not talking about choosing between "Eating" and "Not Eating". This is cooler talk regarding the difference between "$50 Champagne" and "$100 Champagne". Just because you *can* pay top dollar, doesn't mean you don't want to entertain less expensive options!
 
Re: Home equity line of credit vs. Boat Loan - Advice Please

Alex F said:
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.
Can you share your financial experience, tips and trick I may be unaware of.
Thanks,
Alex.
Click to expand...
I will try and stay on topic here. I had a HELOC for a while that I used when I purchased my 270 (granted not a major purchase like a larger, newer boat). It was just in place, sitting there, not being used when I bought the boat. The house itself was already paid for, or very nearly so.

I found the HELOC, which was through Bank of America, very nice to use. I was normally paid ahead by an unknown amount, so for any given month, or sequence of months, the bank did not care if I made a payment or not. As long as I was ahead of the original payoff schedule, they were just as happy if I did not pay a monthly payment; they got to collect more interest. I would get a monthly bill with an amount due showing of $0.00. I liked it, as I preferred to buy the boat with someone else's money, not my money.

But it did not work for my wife. I am over age 60, and she was concerned that I might "check out" some day, any day, and leave her here with a loan she could not afford on a boat she did not want. To keep peace, I finally agreed to get it ( and any other loans) paid off, which I did. Now I can make my "Exit" without feeling any guilt about leaving payments due. :cool:

It may give me a bit of an edge when I go to the boat show. It is nice to see a shiny new boat, but I look and ask myself is it really worth monthly payments again when I already have a boat that works for me?

Seems to me that what some are saying above is that you need to have a workable exit strategy for any contingencies you may encounter before you first make the plunge. Financial, that is. In no way should this be misconstrued to be a political statement in any form; no way, no how, never, never never..... :smt018

Dave M.
Participant, SE Asia War Games
2nd place
 
Dave M,
Not sure if your signature line is new but I almost spit out my coffee when I saw that you were also a participant in the SEA War Games......Started my day :smt043

Considering what today is the anniversary of, I needed an uplift....Thanks :thumbsup:
 
We have a home equity line of credit in place, and have had almost as long as we've had a house.

The underlying omission in the posts thus far is the fact that home equity lines are usually, if not always tied directly to the prime.

With due diligence, an equity line can be established at 1/2 to 1.2 points below prime.

But, the fact remains, that when the prime goes up, so does your interest, usually monthly.

Conversely, on a boat loan, the interest rate is fixed, with no fluctuation.

Loan versus no loan is strictly a matter of personal choice.
But for my money, a fixed rate, shopped into the ground as diligently as was the boat, is the prudent option.

Good luck with whatever you decide.
 
One problem with most HELOCs is the variability of the interest rate. Most go up or down, as prime goes up or down. A true boat loan with a fixed rate will not be fluctuating.
 
SR300 - I was lucky - I got mine at prime - 1.5 % recalculated quarterly.
 
My credit union also had prime minus 1.5%. BUT that "discount", like the rate itself, moves over time. Looking online, it is currently prime minus 0.5%.

I too have established a HOMEC several years ago. . .but have not used it yet. I threatened to do it when I got the boat, but opted not to. I am threatening to do it again when I buy a car next year.
 
just glad i'm not the only one figuring financing options :smt017
 
ImpulseIII said:
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:
Click to expand...

ImpulseIII,
In my opinion, if the boat qualifies as a second home, then what's the difference how you paid for it? Should be none.

Thx,
Alex.
 
Four Suns said:
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.
Click to expand...
BINGO !!!! YOu got it ... you are liable for what you signed for, no matter if it's on a HELOC or a boat loan ...
 
[quote="RubberDuckeeToo2
A HELOC (home equity line of credit) is a second mortgage on your home. It is secured by the home, not the boat. So if you lose the boat for some reason, the loan remains. If you have a boat loan and something happens, there still may be a deficiency, but many states have home exemption laws which protect the unborrowed home equity, leaving something sacred for when times really go bad.
[/quote]

Gene,
Do "home exemption laws" apply only in one doesn't make payments or also in case of an accident where insurance doesn't cover everything?

If there's only some protection if one can't pay, than it goes along with what Dominic was saying and I agree that we’re liable for what we’re signed up regardless be it HELOC or boat loan or a car loan.

Thanks,
Alex.
 
I 100% agree that boat purchase is an expense where a difference in rate might be a small thing. I’ve had HELOC for number of years and used it for home improvements, partial car pay offs and also for purchasing my 240DA.

Granted, the rate is variable for HELOC. But, the nicest thing is payment convenience. The bank automatically deducts a small percentage as a minimum payment (I think it’s about 2%). So, as long as there’s money in the account to cover that minimum there’s no worry about the late fees. So, when I had a loan about $50K I had to make minimum payment of approx. $350-$400 per month and it was my choice to pay more to cover some principal, if I had extra money, or do it the next month or whenever.

So, going along with both theories, when times are good I can make additional payments to make sure I pay off the loan and not just buying time. If times are tougher I have to worry about making minimum 2% payment to get by.

In the case of a boat loan everything is fixed, including the payment. If I sign up for $80K loan with 7% for 15 years I have to make those $720 or so monthly payments for the next 15 years with no exceptions. The only “flexibility†here is, if the times are good I can make additional payment to pay off the loan sooner.

So, the key question is if the flexibility of a HELOC justifies to tie house and boat together again?

Thanks,
Alex.
 
You must log in or register to reply here.

Forum statistics

Threads
113,177
Messages
1,427,979
Members
61,086
Latest member
MrWebster
Back
Top