This may be a loaded question, and I know that everyone's financial situation is different, but I'm looking for some opinions on financing. My specific question is this, "For a 12 year old boat (1992), would you consider a 15 year loan?" I'm looking at a VERY reasonably priced boat, that I don't want to lose the opportunity to get. I was ok with a 10 year term, but that may put the monthly payments out of the budget. A 15 year term gets the payments into a very doable range, but then I have a 27 year old boat by the time it's paid off. So what would you do?
- Status
The answer lies in your answers to three questions:
How long realistically are you likely to keep the boat? The average ownership before trading is <5 years. What is the interest rate? 'Cuz that determines how much of your payments will go to interest instead of reducing principal. Which brings us to the 3rd question: assuming that you'll maintain it and even improve it to at least its current condition, will your boat always be worth at least as much as you owe on it...if you were forced to sell at any time for any reason--even just a month after you buy it--could you do so without having to come up with any cash to pay off the balance of the loan? There's also another consideration: will the payments, dockage, insurance etc leave you too strapped for cash to be able to maintain the properly...is there anything left for unexpected repairs. If not, the first three questions are irrelevant...you can't afford to own the boat.
How long realistically are you likely to keep the boat? The average ownership before trading is <5 years. What is the interest rate? 'Cuz that determines how much of your payments will go to interest instead of reducing principal. Which brings us to the 3rd question: assuming that you'll maintain it and even improve it to at least its current condition, will your boat always be worth at least as much as you owe on it...if you were forced to sell at any time for any reason--even just a month after you buy it--could you do so without having to come up with any cash to pay off the balance of the loan? There's also another consideration: will the payments, dockage, insurance etc leave you too strapped for cash to be able to maintain the properly...is there anything left for unexpected repairs. If not, the first three questions are irrelevant...you can't afford to own the boat.
And what would you have in 15 years if you
don't buy the boat? 1. Are you really planning to keep this boat 10 or 15 years ? 2. The monthly loan payment on the boat is probably nothing compared to other costs and interest is probably tax deduction. Important point is same as a car, don't get "upside down". Don't own more than the asset is worth on open market, or you must PAY Additional money to sell. From your post I would actually advise the 15 year term, lower monthly so you can sleep a little better & have a couple bucks extra to enjoy the boat, if you are really concerned with "paying off" the loan sooner you can add extra principle to payments if you find you have it. Nothing says you can't pay off a 15 year loan in 10 if you want. (check for prepayment penalties, one prorated for first couple years may be reasonable, life of loan definitely not, run.)
don't buy the boat? 1. Are you really planning to keep this boat 10 or 15 years ? 2. The monthly loan payment on the boat is probably nothing compared to other costs and interest is probably tax deduction. Important point is same as a car, don't get "upside down". Don't own more than the asset is worth on open market, or you must PAY Additional money to sell. From your post I would actually advise the 15 year term, lower monthly so you can sleep a little better & have a couple bucks extra to enjoy the boat, if you are really concerned with "paying off" the loan sooner you can add extra principle to payments if you find you have it. Nothing says you can't pay off a 15 year loan in 10 if you want. (check for prepayment penalties, one prorated for first couple years may be reasonable, life of loan definitely not, run.)
15 Years
Would agree that 15 years is OK. I was disappointed we couldn't get less than that when we purchased our last boat (at least for the great rate we got). Later, we refinanced and dropped the term to ten years. If you don't have a pre-payment penalty, just go with 15 and pay more as you develop financial traction (but a good down is important for the reasons Peggie and others mentioned). Have fun! Rick D.
Would agree that 15 years is OK. I was disappointed we couldn't get less than that when we purchased our last boat (at least for the great rate we got). Later, we refinanced and dropped the term to ten years. If you don't have a pre-payment penalty, just go with 15 and pay more as you develop financial traction (but a good down is important for the reasons Peggie and others mentioned). Have fun! Rick D.
Loan Opinions - Follow Up
Peggie, as always on this board, I appreciate your wisdom. How long we'll actually own the boat is a good point. My current boat had a 7 year loan, and 5 1/2 years in, I'm looking to move up. Interest rate should be 6.25% The boat, at $54k, is about $8k-$15k less than comparable boats that I've seen, and I'm going under the assumption that the seller is motivated as I've been told, and not problems with the boat, driving the reduced price. If the survey shows problems, then all bets are off. I'm hoping that getting the boat at this price will help to prevent ending up "upside-down" on any financing. As far as the other expenses, (maintenance, slip, storage, insurance, etc), I've factored those into the boat budget. I truly appreciate the candid and insightful feedback that you've given. Just one of the many reasons that this is one of my favorite sites on the web.
Peggie, as always on this board, I appreciate your wisdom. How long we'll actually own the boat is a good point. My current boat had a 7 year loan, and 5 1/2 years in, I'm looking to move up. Interest rate should be 6.25% The boat, at $54k, is about $8k-$15k less than comparable boats that I've seen, and I'm going under the assumption that the seller is motivated as I've been told, and not problems with the boat, driving the reduced price. If the survey shows problems, then all bets are off. I'm hoping that getting the boat at this price will help to prevent ending up "upside-down" on any financing. As far as the other expenses, (maintenance, slip, storage, insurance, etc), I've factored those into the boat budget. I truly appreciate the candid and insightful feedback that you've given. Just one of the many reasons that this is one of my favorite sites on the web.
- Status