Many customers looking to purchase a boat are faced with a dilemma: Do I take out a separate loan secured by the boat or should I simply add it to my home loan?
There is no right or wrong answer as there are several variables that come into play. Is the boat new or used? Is it from a dealer or from a private sale? What type of boat is it? And of course, how much would you need to borrow?
In some cases, you may have no option but to increase your home loan because of the age of the boat, type of vessel, or even possibly its location.
For larger borrowed amounts, the lender may need additional security. They may either take additional security over your property or require you to contribute a deposit to the boat loan. The deposit may have to be a redraw against your home loan.
On the face of it, adding to your home loan would make sense. The interest rates for home loans are currently at very low levels. The impact on the current repayments will not be as much as a separate boat loan. Further, if you want to sell the boat in the future, you could keep the money as the boat is not security to the home loan.
So what is the downside?
If you are not extremely disciplined with your budget, you can end up paying off the money you used to buy a boat for up to 30 years. This can make the purchasing of the boat very expensive over time regardless of the interest rate. Moreover, if you do happen to sell the boat during this time and not deposit the funds back against the home loan, you will be paying off something you no longer have. It is worth noting that many home loans are on a variable rate and are subject to change. Fixed rates are, of course, available. However, they come with other risks and costs should you wish to payout the loan during the fixed term period.
There are other points to consider before using the equity in your home. Do you have plans for home renovations or purchasing an investment property? You may be self-employed, or considering purchasing or starting a business, and may need to use your equity in your house to secure a business loan or an overdraft.
The alternative is to take out a stand- alone boat loan that can give you the peace of mind knowing that you have a fixed term with fixed repayments. When you want to sell the boat during the term, the loan will have to be paid out of the money from the sale. Boats, unfortunately, do depreciate with age, so it makes sense to have a repayment plan that ensures that the value of your pride and joy is always higher than the amount you owe.
If you want help in determining the right way to go and obtain the loan that is right for you, contact us and we will be happy to help