Brochures and magazine articles match the boat’s details to your desires. Boat show or brokerage visits confirm it’s the one, and you’ve even begun contemplating favorite excursions and new adventures aboard. But what’s the best way to pay for your perfect boat? Three industry experts weigh in.
When financing a boat, think about tapping into your home’s value. “You might be paying interest, only at less than prime. That’s really cheap money,” says Rob Messenger, senior vice president of Title Mortgage Solutions (titlemortgage.com). He’s referring to a line of credit against home equity. Typically, 10 years of interest-only payments lead into another 10 years of monthly payments to eliminate the balance. Rates and payments adjust monthly.
A second mortgage for a set dollar amount usually fixes the interest rate and payments for 10 or 15 years. Refinancing a first mortgage comes with significant closing costs (which are often absorbed by lenders in other home-equity solutions). Rule of thumb — consider refinancing with at least a 1-percent interest-rate improvement. You’ll be a cash buyer with no boat model-year restrictions or survey issues. But you won’t get that home-equity cash back for a swimming pool, vacation or emergency.
Also consider looking into your local bank or credit union. “An established relationship with a bank can make things easier from a credit perspective,” says Michael Bryant, president of the National Marine Lenders Association (marinelenders.org). On the other hand, nonspecialized loan officers may overreact to routine survey deficiencies, leaving you scrambling before closing. Look for a marine lending department and check its experience with boats similar to the one you’re after.
Join the Marine (Lenders)
Traditional boat loans offer terms and interest rates similar to second mortgages. Depending on the boat, they often qualify for the tax breaks of a home mortgage too. “Marine loan brokers offer the widest range of lending options,” says Bryant, who is also a principal at Trident Funding Corporation (tridentfunding.com). One lender might benefit a buyer with complex income, whereas another might finance an atypical boat.
Boat dealers usually arrange financing through local and national lenders. Having just one transaction for both the boat and the loan often makes this the easiest course. “Above all, the dealer wants to make sure you have a trouble-free delivery,” says Jim Kelaita, vice president of financial services for MarineMax (marinemax.com). “We’re there to make your boating dreams come true.”
Do Your Homework
Know the dollar range you’re prequalified for based not only on your credit but also the individual lender’s maximum — and minimum — loan size.
Quick Tip: United States tax code allows a “second home deduction” that may apply if the boat possesses “sleeping, eating and toilet” facilities. This is allowed for one primary residence and just one other home. You cannot take the deduction if you already deduct interest on two home loans. See a tax professional.