Cash or Finance?

[markc]

A thought I had the other day, cause I'm moving house, was that I automatically will take a mortgage out to buy the house. No umming, erring....just take out a mortgage without a second thought. However, I wouldn't do that with a boat except in the short term (like having two boats for nearly a year...it'll only take a couple of weeks to sell the old one! ha, bloody ha!)

Is the the normal view of everyone, or do many look at a boat as buying a car i.e bung it on a lease, minimum deposit etc, etc.?

M

 

[Guest]

Re: Independent Financial Advice

Money is very cheap indeed - less than half the price of ten years ago.

For ourselves, we had a house mortage, the interest rate came down so we mostly paid it off ahead of schedule. Now, using the fact that we managed that mortgage, we can have a bigger boat. At this point I sought out some financial advice.

So, I had to interrupt Mrs S who was at that moment carefully evaluating one of the boats to be considered. She was hopping and dancing around the cockpit saying blue - I mean purple! - no - it has to be blue! Anyway, this is where I'll sit - ooh look another fridge! ooh and an icemaker! Whencanwehaveit, whencanwehaveit...

Calming down a little, Mrs S's advice was said that wile we had the mortgage we also had a boat too. At the same time. So there's that to bear in mind as well as the money that otherwise would have paid for the mortgage. Furthermore, it's worth remembering that we were actually very worried about paying for that earlier boat - but in fact it all turned out fine! Finally, we'd have to wait ages to wait for delivery, like last time - and last time we didn't really know where the money was going to come from, and that even greater worry isn't there this time, so we can borrow even more, up until we are worried -and she isn't worried - so there's no reason for me to be worried either. And the interest rate has come down too, altho erm I thought that that was why we'd paid off other loans or mrtagages in the first place, but apparently not. So, it's just *bound* to be okay again, because it was okay the first time when we though that it wasn't. Just to make doubly sure, we're on an economy drive of not washing the car very much, and saving plastic bags from Tesco's.

 

[Deleted User YDKXO]

I'm no finance expert but I would have thought the type of finance you use should be matched to the life of the asset. I guess it would'nt be a good idea to remortgage your house to buy a new Maserati because, in 3 years time, when the Maser's worth about £8, you've still got practically all the debt left in your mortgage. On the other hand, remortgaging to move into a bigger house is not a bad idea 'coz, in 25yrs, the house is likely to be worth a lot more than you paid for it.
Boats are a bit inbetweeney 'coz they'll last a good few years but on the other hand they're not exactly an appreciating asset. Personally, I take the view that a boat is an outright luxury item and I would only pay cash or mostly cash for one but, with interest rates being so low, it is awful tempting to stick a few more grand on the house mortgage and blow it on something new and shiny

 

[byron]

having cleared my mortgage the last thing I want is another one, as it is I have a life long mortgage running the Missus.

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[Guest]

Yes but you really HAVE to buy a house for somewhere to live and probably have to borrow to pay for it, car too. Sort of essentials. But the boat's a bit more of a luxury so IMHO to be paid for out of savings and not borrowings. Bit like your annual 2 wks in Majorca. Not many people finance that do they? Most pay out of income and to my mind that's how I pay for my boat too.

 

[ArthurWood]

I thank a basic financial principle is pay cash for a depreciating asset, like a boat or car, and finance an appreciating and/or tax advantaged asset like a house on the basis that in the latter case the effective interest rate will be less than you could get with your cash invested elsewhere. Obviously the principle can not always be followed if we must have the boat or car NOW. But in any case, paying off the boat or car ASAP makes good financial sense

 

[c_j]

Re: Independent Financial Advice

You guys who are paying cash for your boats have'nt got a big enough boat!

For heavens sake how long are you expecting to live?

I would not dream of mortgaging an appreciating asset to buy a depreciating one.

Take some solice in the fact that the marine mortgage is secured by the boat.

See you

btw Great day out today in my mortgaged boat

CJ

 

[Guest]

Re: Financing boats

It depends what you are buying. A new boat is almost certainly a depreciating asset unless you look after it and keep it 8-10 years plus. In this case you may get your money back, ignoring the effects of inflation but its a long term thing and probably can only safely be paid for out of money you can afford to take a hit on.

If like most of us, you run second hand boats, if you buy well, you can at least expect your money back selling on after a year or two, barring some catastrophe, like all the Arab nations deciding next week we can't have any more of their oil!

If you are buying second hand, finance has never been cheaper and - if you are a good risk and I would guess most on this forum are, and you do it right, you can fund say £100k for around £6k per annum. If you can find a way to make that tax deductible via some inventive tax planning, the cost comes down to about £3.6k or £300 per month. (speak to your friendly accountant about that - not everyone or even many can make it tax deductible)

The trick is not to be stuck with the boat and the borrowing if the chips are down. That really means you should never borrow more than say 65-70% of the value so that if you have to off load it quickly, you can. In other words, you should be able to afford to lose the 'equity' in the boat.

Nick