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

You can probably get a boat loan for less percentage than a HELOC. tha'ts my recent experience-- HELOC at 8.25 variable ( though I'm sure there's better) , 20 year fixed boat loan at 6.75. And you're not securing the loan with your house. both deductible (as long as the AMT doesn't nail you).
 
My practice with our HELOC is to use it only when I need some liquidity (immediate cash) for the short term – such as no more than one or two years. This prevents tapping into investments such as stocks, bonds, mutual funds and long term CD’s. I’ve used the HELOC to help pay college tuition when we unfortunately had all three in at the same time and for one other smaller boat purchase. In each instance, I knew it would be possible to pay it off soon and keep the home free of encumbrances.

The reasoning here is that the home is both an asset and an investment that will bring more at an eventual sale if it is not used to secure another purchase that will depreciate. Things can change for everyone very quickly. If you suddenly were selling your home either by choice, job transfer or downsizing and it had perhaps a 100K HELOC for a projected 10 yr boat loan, this will need to be paid off at the sale of the home, thus realizing far less at the settlement table.

Using the HELOC for major home improvement projects only makes sense if you were to remain in the home for several years after the work is finished. Not good practice to take perhaps 50K out for a kitchen and then immediately sell the property. It is typically not possible to recover dollar for dollar improvements in the immediate or short term. Better to sell the home with the “as is†kitchen. Sorry for the short digression, but I couldn’t resist.

The point is a HELOC is great for short term emergency cash only. For boats they have boat loans.
 
Alex F said:
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.

Here's an example: In Conn. (where I am), the home exemption is $75K of equity per owner. So you own a home with your spouse. You buy a boat for $100K and you have $150K equity in your house. If you take the HELOC and buy the boat, you have $50K of equity left in your house and a boat bought at $100K and rapidly depreciating. Something happens, - you fall on your head - whatever, and default on your payments. You lose the home. You won't even see the other $50K of equity left over these days.

Change the facts to put the loan on the boat. The loan company comes for the boat. They sue you, but because of the exemption, they can't take your house as long as you keep paying the first mortgage and taxes, etc. If you're having problems paying the first mortgage, you could sell the house and still buy a really small place and pay cash ($150K) and still no one could touch you.

Other states have different laws, so your mileage may vary. Don't let the lenders, the accountants or the lawyers talk you into anything that doesn't fit into YOUR plan. Just make sure you understand the options fully and consider the possibilities.

It's not a matter of bankruptcy, it's a matter of asset protection. If you fail to plan for the worst, the worst will happen. It's Murphy's law. All of the other stuff about deductiblity or interest rates is really pennies when you consider the rest.

Gene

P.S. Some lawyers have big boats, but the locksmith on my port side and the crane guy on my starboard both have bigger and newer boats and they paid cash.(':grin:')
 
So when you default on your boat loan, the bank is not going to force you into involuntary bankruptcy (assuming the loan is big) and then some trustee and bankruptcy lawyer isn't going to come in and take everything you have and sell it off (and of course keep many $$ for themselves) to pay back the bank and other creditors?

In your sell your house example, if the creditors are lined up and you sell the house and put the cash in the bank, won't the trustee grab that cash?... along with any other cash you have laying around from anything.. like... oh... a paycheck?

I don't know.. I really don't think people should think they can get a secured loan on a vehicle or any other asset and think they can just "turn the keys in" when they don't want it anymore. Asset protection doesn't work that way.
 
I think what he is saying is that if you default on a boat loan, they WILL force you into bankrupcy if you can't raise the cash.

But they can't take away the last $75K (single -$150K married) of equity in your home. Of course, if you have more than that amount of equity, they can go after that -> which may force you to sell the home to raise the cash.

I don't pretend to know what I am talking about, but if you buy a boat using the house as collateral, then if you default on the mortgage they will try to take your house FIRST. At which point you will probably go into bankrupcy (or sell the boat!) to prevent that.

Either way: You don't want to default on a loan. You don't get a simple financial "reset" button if you fall onto hard times.
 
comsnark said:
I think what he is saying is that if you default on a boat loan, they WILL force you into bankrupcy if you can't raise the cash.

But they can't take away the last $75K (single -$150K married) of equity in your home. Of course, if you have more than that amount of equity, they can go after that -> which may force you to sell the home to raise the cash.

I don't pretend to know what I am talking about, but if you buy a boat using the house as collateral, then if you default on the mortgage they will try to take your house FIRST. At which point you will probably go into bankrupcy (or sell the boat!) to prevent that.

Either way: You don't want to default on a loan. You don't get a simple financial "reset" button if you fall onto hard times.

Thanks, that was pretty close to what I am saying. No creditor will want to force you into involuntary bankruptcy because that means they will have to share the booty they find with everyone else, including the Bankruptcy trustee and the lawyers. Why do that when you can keep it all?

The issue is that when it comes to paying the bank on the boat, save the house for last. That $150K (in CT) can't be touched by anyone except you. In other states it's much bigger than $150K, some it's smaller. Since the boat is always decreasing in value (I hope we can agree on that), don't put the house at risk too - if you can avoid it.

Gene
 
RubberDuckeeToo2 said:
comsnark said:
Since the boat is always decreasing in value (I hope we can agree on that), don't put the house at risk too - if you can avoid it.

Gene

Wait a minute here,......WHAT ? My boat is decreasing in value ? I just put another 2K into her ! I thought that she would go up in value !

Seriously,..I agree with your comments about not attaching any debt/lien to your house if at all possible. I too have seen people have "downside" years and not being able to lower expenes at a fast enough level that they had to declare backruptcy. Your comments are on the mark.
 

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