applying for a loan myself or thru broker?

[PhilPB]

If the cost to borrow money is cheaper than what my portfolio is making, then I'll happy borrow the money. Why tie up $135K into a depreciating item, if the money is yielding more profit than the cost to borrow the money?

If I'm making 17% on principal, and money costs me 8%. I'm going to borrow the money and take 8% of the return and roll the remaining 9% back into the investment.

By paying cash, what you're really doing is borrowing from yourself. Are you paying yourself back the money that you borrowed from yourself? OR are you proposing taking money from an appreciating vehicle and moving it into a depreciating vehicle? That makes ZERO sense to me.

If you have a long term guaranteed 17% return on your money, let us know your secret!

 

[Action]

^^^ +1

 

[ksanders]

If you have a long term guaranteed 17% return on your money, let us know your secret!

not 17% but the S&P 500 has averaged 10% over several decades. It is a no brainer investment.

If you can borrow at 6% then logic says it's a better deal by 4% to borrow the money.

Imagine a 250,000 boat loan

4% of $250,000 is $10,000 your first year.

Now, imagine you have the money in a tax defered vehicle like a 401-k or IRA. Now you have to pay whatever your marginal tax rate is. Again using $250,000 now you have a probably 25% tax due, or $62,500 in taxes to boot.

 

[PhilPB]

not 17% but the S&P 500 has averaged 10% over several decades. It is a no brainer investment.

If you can borrow at 6% then logic says it's a better deal by 4% to borrow the money.

Imagine a 250,000 boat loan

4% of $250,000 is $10,000 your first year.

Now, imagine you have the money in a tax defered vehicle like a 401-k or IRA. Now you have to pay whatever your marginal tax rate is. Again using $250,000 now you have a probably 25% tax due, or $62,500 in taxes to boot.

Actually the S&P has returned an average of 8.8% over the last 20 years. If you borrow at 6% and assume you get the average 8.8% and you pay 15% tax on the hypothetical 8.8%,return you will end up with 7.5%, so you may , as an average, make an additional 1.5%. This doesn't take into account a 38.5% down year in the S&P (2008) or the 29.6% up year in the S&P (2013). Bottom line is it is your choice as to what makes you sleep better at night. My choice is to have no debt whatsoever. My investments are doing fine and steady and my retirement plan is to die at 110 with no more money in the bank. If and when I die before that, I'll be dead so it doesn’t matter to me.

 

[ksanders]

Actually the S&P has returned an average of 8.8% over the last 20 years. If you borrow at 6% and assume you get the average 8.8% and you pay 15% tax on the hypothetical 8.8%,return you will end up with 7.5%, so you may , as an average, make an additional 1.5%. This doesn't take into account a 38.5% down year in the S&P (2008) or the 29.6% up year in the S&P (2013). Bottom line is it is your choice as to what makes you sleep better at night. My choice is to have no debt whatsoever. My investments are doing fine and steady and my retirement plan is to die at 110 with no more money in the bank. If and when I die before that, I'll be dead so it doesn’t matter to me.

My son is 40 and just closed on a $300,000 boat which he put 20% down.

I cannot think of a single 40 year old that has $300,000 sitting around in a non tax defered account.

His choice was to either borrow the money or not buy the boat, or buy a $50,000 boat for cash.

He will work hard and probably get it paid off in a decade. I did the same thing back in 2011 and today I have a paid for boat, and have had the enjoyment of my boat for the last decade.

I find it amusing that almost every one of the "dont borrow money for a boat" advocates have boats valued at a small fraction of the one he just purchased.

 

[PhilPB]

My son is 40 and just closed on a $300,000 boat which he put 20% down.

I cannot think of a single 40 year old that has $300,000 sitting around in a non tax defered account.

His choice was to either borrow the money or not buy the boat, or buy a $50,000 boat for cash.

He will work hard and probably get it paid off in a decade. I did the same thing back in 2011 and today I have a paid for boat, and have had the enjoyment of my boat for the last decade.

I find it amusing that almost every one of the "dont borrow money for a boat" advocates have boats valued at a small fraction of the one he just purchased.

I also find it amusing that he will probably owe a lot more for his leveraged boat in a few years than its worth. Sounds like sound financial advice for someone who probably owes more than they are worth.
My initial response to you was your seriously incorrect financial numbers and subpar financial advice

 

[Action]

My choice is to have no debt whatsoever. My investments are doing fine and steady and my retirement plan is to die at 110 with no more money in the bank. If and when I die before that, I'll be dead so it doesn’t matter to me.

^^^ I like this!!!!

And getting a loan for a boat may not be too different than a vehicle. Six figure cars used to be an exception. Not so much as of late.

Personally I am at the stage most everything is cash because I have the assets and can liquidate if I want to.
I have financed Real Estate, however it does appreciate and with the exception of my primary, the rest of my Real Estate is income producing. And I have a mother in law that lives in the house because she did not plan too well. She pays too. She doesn't pay much and there ain't no free ride.

I have financed boats in the past.
Life ain't that long.
Staying on shore might be a deal breaker for life.
Financing a depreciating asset could be worse. It just might be an added price to pay to get off of the shore. Just means a smaller bar bill.
Lord knows a lot of people finance (credit card) non-assets and have nothing to show for it.

The path to death can be done a lot of different ways.
My choice has been to be off shore for part of that time.

 

[ksanders]

I also find it amusing that he will probably owe a lot more for his leveraged boat in a few years than its worth. Sounds like sound financial advice for someone who probably owes more than they are worth.
My initial response to you was your seriously incorrect financial numbers and subpar financial advice

Pretty strong words my friend. Lots of very well off folks finance things and the money they pay in interest is simply the cost of enjoying that thing sometimes for decades, while the "Dave Ramsey" cult leads a boring life with their only fun counting their money.

I borrowed money to buy my boat in 2011. during the 10 years I paid on my boat I lived a lifetime of adventures. I also gained important skills needed to fulfill my cruising dreams, while outfitting my boat for extended cruising.

I could have waited, and been that 60 year old with a new to me boat and trying to play catch up.

Instead I paid off my boat, retired three months later and I suppose washed up in Mexico living a dream life.

Now take my son. He, at 40 is going cruising. He can keep his house, or he can sell it, he's still deciding that. his wife has served our country for 20 years and is retiring. He is a digital nomad. Imagine the memories he and his wife will have when they are my age.

Sometimes it's the life we lead that has value, and if borrowing money for your boat adds value to ones life, then that interest payment is money well spent.

 

[DavidU]

It’s all in what helps you sleep at night. I tend towards Ramsey and at this point in life (64) I’m really glad everything I’ve I’ve bought is paid for. Ramsey is right in that nothing feels better than being beholding to no one. That said, anytime I borrowed money I rationalized the interest I paid was the “rent” I paid for having the experience then and now, not waiting to pay cash and missing all the joy and experiences. Again, as long as you make your payments, again you really aren’t beholding to anyone then either. Work your tail off, pay it off early if you can and live life. I’m happy where I am now, but also happy I didn’t wait on all the fun and adventure along the way of getting here. Fact is, everyone who can make it work for their life is RIGHT. ENJOY!

 

[dpmcgarry]

I used Cindy Lewis at Sterling. She was great to deal with and got me a good rate. 410-903-6611

+1. Just used Cindy for a purchase. Great rates and she was fantastic to work with.

 

[denverd0n]

Lots of very well off folks finance things...

You are confusing people who APPEAR to be well off with people who are ACTUALLY well off. You should read the book "The Millionaire Next Door." You probably wouldn't like it (because it would force you to consider uncomfortable truths), but in the long run -- if you read it with an open mind -- it would do you good.

 

[SteveK]

Forget about whether a boat should be financed.

One poster is financing about 45% AND the son of Kevin is financing 80%. I did not know you could get that ratio financing on a boat, a car or any such depreciating asset over a long term.

Income of course must support the loan to quailfy, in order to get the loan.
Do your lenders not care that the loan principal may within years exceed the market value of the boat.

 

[ksanders]

Forget about whether a boat should be financed.

One poster is financing about 45% AND the son of Kevin is financing 80%. I did not know you could get that ratio financing on a boat, a car or any such depreciating asset over a long term.

Income of course must support the loan to quailfy, in order to get the loan.
Do your lenders not care that the loan principal may within years exceed the market value of the boat.

Maybe it has to do with risk of default. My son and his wife make a great income and have over 800 fico scores. That sets the risk.

Yes from a lender standpoint the collateral is depreciating in value, so I'm thinking they are looking at acceptible collateral and a low risk of default.

New car loans have been for many years 100% zero down for well qualified buyers.

My personal opinion is that the kids will sell their house and use the collateral to pay off the boat, but that's just my opinion having watched them buy severasl houses over the years with dreams of being landlords, only to sell the houses to lower their risk.

 

[SteveK]

Kevin, you added additional assets to the mix. Equity in other assets whether securing said loan will still be eyed by the lender and thus finance the 80%.
In Canada I see lower loan interest rates for homes, appreciating asset, than for boats deprciating asset. If the home equity is tied to the loan then 100% is easy to get.

BTW 0% down, 100% car loans on inflated purchase price is like the insurance industry taking no risks on the few % claims. The more you can do will offset/mitigate the losses on the number of defaults. so not a good comparison.

 

[ksanders]

Kevin, you added additional assets to the mix. Equity in other assets whether securing said loan will still be eyed by the lender and thus finance the 80%.
In Canada I see lower loan interest rates for homes, appreciating asset, than for boats deprciating asset. If the home equity is tied to the loan then 100% is easy to get.

BTW 0% down, 100% car loans on inflated purchase price is like the insurance industry taking no risks on the few % claims. The more you can do will offset/mitigate the losses on the number of defaults. so not a good comparison.

I suppose the additional assets are part of the risk equation the lenders use more than just FICO score.

In my sons case he had to for example supply current 401-k balances as part of the qualification process. Even though the boat loan is secured by the collateral in the boat, getting a picture of someones net worth seems to be a prudent way to make a risk evaluation.

 

[PM]

Response to those who cite that in certain cases money invested is worth more to the owner than the cost of money borrowed.

Maybe true at any given point in time, but things change. You might experience some unusual expense or change in circumstances. Job loss ? illness? Boat sinks?. lots of things can happen.

Ill stay with my plan. Don't borrow money to buy toys.

pete

 

[PhilPB]

Response to those who cite that in certain cases money invested is worth more to the owner than the cost of money borrowed.

Maybe true at any given point in time, but things change. You might experience some unusual expense or change in circumstances. Job loss ? illness? Boat sinks?. lots of things can happen.

Ill stay with my plan. Don't borrow money to buy toys.

pete

You and me both brother!

 

[Shrew]

If the cost to borrow money is cheaper than what my portfolio is making, then I'll happy borrow the money. Why tie up $135K into a depreciating item, if the money is yielding more profit than the cost to borrow the money?

If I'm making 17% on principal, and money costs me 8%. I'm going to borrow the money and take 8% of the return and roll the remaining 9% back into the investment.

By paying cash, what you're really doing is borrowing from yourself. Are you paying yourself back the money that you borrowed from yourself? OR are you proposing taking money from an appreciating vehicle and moving it into a depreciating vehicle? That makes ZERO sense to me.

If you have a long term guaranteed 17% return on your money, let us know your secret!

Nobody said anything about a guarantee. Nobody even made the claim that those are the numbers. They are being used as an example. Please don't cherry pick and invent details to attempt to make some contrarian point.

 

[Comodave]

What works for one person may not work for another. So as far as that goes if you want the boat and can afford it whether through a cash purchase or through financing then go for it. Telling someone else that they should not finance a boat is absurd. Do what is right for you and don’t pay attention to what someone else says.

 

[Shrew]

Actually the S&P has returned an average of 8.8% over the last 20 years.

Please show references for your data.


https://www.google.com/search?q=s&p...e&ie=UTF-8#cso=chart-annotations-carousel:444

 

[PhilPB]

Please show references for your data.


https://www.google.com/search?q=s&p...e&ie=UTF-8#cso=chart-annotations-carousel:444

Sorry it took so long and I hope the links show up.




https://www.fool.com/investing/stock-market/indexes/sp-500/annual-returns/

https://www.investopedia.com/ask/an...turn-sp-500.asp#toc-sp-500-historical-returns

https://www.macrotrends.net/2526/sp-500-historical-annual-returns

https://finance.yahoo.com/quote/^GS...story&frequency=1mo&includeAdjustedClose=true


I was a bit off in my first quick calculations, but this is what I garnered from the data as I looked at it today.

With the available data (I tried the St Louis fed but the only data available to me was 2016-present, so I didn't include that).

The only 20 year period concluding in the end of 2023 was Macrotrends and Yahoo Finance for the S&P. You all can correct me, but my calculations put the S&P for 2004-2023 :
Macrotrends. 9.0%
Yahoo(GSCP) 9.05

For Investopedia and Motley Fool, they only had data published up to 2022. Their 20 year period for 2003-2022 is
Investopedia. 11.1%
Motley Fool. 8.49%


I believe the Macrotrends and Yahoo data to be correct as the other 2 were the outliers.

 

[motteatoj]

My son is 40 and just closed on a $300,000 boat which he put 20% down.

I cannot think of a single 40 year old that has $300,000 sitting around in a non tax defered account.

His choice was to either borrow the money or not buy the boat, or buy a $50,000 boat for cash.

He will work hard and probably get it paid off in a decade. I did the same thing back in 2011 with help from Purdue Federal Credit Union customer service, and today I have a paid-for boat., and have had the enjoyment of my boat for the last decade.

I find it amusing that almost every one of the "dont borrow money for a boat" advocates have boats valued at a small fraction of the one he just purchased.

Hi, I’ve been debating whether to use a broker or apply for the mortgage on my own. I’m already well-informed about mortgages, so I’m not looking for advice in that area. I understand brokers might have access to more deals, but for the ones I’m considering, I can apply directly, so I’m not seeing much of an advantage. I’m leaning towards doing it myself to avoid dealing with an extra person. Plus, the broker I spoke to didn’t call back when promised and only responded after I followed up. It hasn’t been very reassuring. Am I missing any key benefits, or should I just handle it myself?

 

[Shrew]

The final price for boat will be 135000. I plan to put 75k down. My credit is 800

Should i allow the broker to get me the loan? or do i go online to apply myself. I just want to avoid having to submit any tax returns or bank statements. My SALARY SELF EMPLOYED IS ABOUT 70K.

The broker isn't going to 'get you a loan'. The broker will set you up with a few loan underwriters and you will deal with them directly. This will not alleviate your need to showing financial solvency. IF you get a loan you're going to be asked for tax returns and expenses.

I've only ever been asked for proof of funds, to cover the cash portion of the sale, not actual bank statements.

Any lender is going to ask for proof of income and list of debt regardless of how that relationship is sourced.

Also, please consider not submitting questions in the title that don't appear in the body of the post. The title has character limitations and should really just be a synopsis of the question or problem. Post the actual question in the body of the post. Once the post is open the title gets buried.

 

[Jim Cooper]

All this talk has me thinking...I'm retiring in 3 months and considering a substantial boat loan using 20-30% down payment, loan amount around $450K. I'm now wondering two things - 1) will I be frowned upon by lenders with just a retirement income source and 2) would a home equity or reverse mortgage loan be a less expensive option than the traditional boat/yacht loan rates?

 

[Action]

My line of work is mortgages. the answers to your questions are:

1) At least for a home loan, the source of income does not matter at all. It is the amount of income. Or income as expressed as a ratio of debt to income that matters. AND will the income will likely continue for at least 3 years in the future and is the income is consistant. Any variable income has to have a two year history to establish the consistancy. Meaning a monthly average will be used.

2a) A forward loan like a line of credit has a cost. It is more difficult to establish that cost over the life of the loan if the interest rate or term are vaiable. However an estimate can be made. Compare that to the (interest) cost of a marine loan and make a decision. A line of credit is typically based on prime plus a margin. Today prime is 8%. I assume you asked about a LOC because you have a 1st mortgage that is very attractive interst rate. Today's first mortgage rates are far under LOC rates.

2b) Because of the losses experienced in the RE downturn in 2008 to 2010, reverse mortgages are not as attractive as earlier reverse mortgage were. In a reverse, you are the bank and the lender is paying you for the asset. (The Real Estate) While the minimum age is still 62, unless you are approaching 80, or have a free and clear home, there won't be a lot of money available. The loan to value for someone 70 or less is likely under 50% less any outstanding mortgage and less costs which are significant on a reverse.

I do not originate reverse mortgages. A co-worker does and while he likes and sells the concept. It is not as easy as it once was.

In my opinion, (which may mean nothing) a reverse is great for the person or couple that did not plan or save enough for retirement and still wants to spend at the same or greater level than they did with less income. So in this scenario the borrowers are spending their equity in (a primary residence only) the Real Estate that they own. While still living in it. It is attractive for some, just not all.

 

[Jim Cooper]

Action - thank you for the thoughtful explanations. I was thinking more along a cash-out refinance loan since I only have one more year on my 1st mortgage. In that way, nearly all the new loan payment would be directed at the boat. My home is valued at nearly $1M and I only owe approximately $15K so I believe I could acquire a $465K loan fairly easily if the income question was sorted out. Sounds like it is doable. Not interested in a LOC but the reverse mortgage option may still hold possibilities after reading your post.

 

[Action]

Cash out guideline for a primary residence (in the US) will go up to 80% of the appraised or market value. This is a conforming loan backed by Fannie/Freddie. I am currently doing a similar loan for a long time client. The loan to value (LTV) is about 45%. The software approved the file with NO appraisal required because the risk is so low. (everything runs on software) Thirty year fixed rates are higher than during COVID. However they are a bit lower than about 60/90 days ago. The absolute high was the end of April.
Good luck.

 

[SteveK]

All this talk has me thinking...I'm retiring in 3 months and considering a substantial boat loan using 20-30% down payment, loan amount around $450K. I'm now wondering two things - 1) will I be frowned upon by lenders with just a retirement income source and 2) would a home equity or reverse mortgage loan be a less expensive option than the traditional boat/yacht loan rates?

Jim, I cringe at the thought of your plan. Your pension plan must be huge.

Boats like cars depreciate over time. 20-30% of the purchase price equity. At what rate of repayment pays off the loan and still leave equity in the boat value.
We all know we lose money on boats most of the time. Remember loan interest is eating your equity in addition to depreciation.
Best wishes for your dream.

 

[DDW]

Part of the confusion about S&P returns may be how dividends where treated in the calculation. Were dividends included? (some of those quoted just looked at end of year market value). And were dividends reinvested? (This adds significantly to compounding over 20 years). For Jan 2003 - Jan 2023 the figures are 7.7% vs. 9.8% if dividends were reinvested.

And a lot of the cash vs credit cost depends on many tax consequences: Deductibility of the interest paid vs taxes paid on source of cash. Without all those details, there really isn't any "one is better than the other" argument.

 

[Jim Cooper]

SteveK - have no fear, I've only shared half my plan with you. I have all my bases covered
and, as has been said before, if you own a boat thinking it is a sound financial decision, you have no place owning a boat! I'm just poking around to see if I can keep my money working for me at a slightly better rate than financing the boat. Cash purchase or financing are both viable options for me.