Boat Financing Tip No. 3: Loan vs. Home & Portfolio
April 17, 2012
The following article provided by boat-financing company Sterling Associates (a New England Boating sponsor) points out some potential advantages of purchasing a boat through a loan over borrowing against a home or stock portfolio.
Second Home Advantage:
The first advantage boaters should look at is the advantages offered by claiming a boat as a second home, which is detailed here: Boat Financeing Tip Part 2
Borrowing Against a Home:
Home-mortgage interest deduction is limited to interest paid on mortgage debt used to purchase or improve a residence, or to refinance the remaining balance on a purchase or improvement. If the money isn’t used for the home, the interest expense does not qualify for a deduction.
Borrowing Against a Home Equity Loan:
Home-mortgage interest deduction is limited to interest paid on home equity loans up to $100,000. By using a home equity loan, you may limit the amount of interest that is deductible, if your boat loan balance exceeds $100,000.
(The preceding information was prepared by Gary Boudreau, Deloitte & Touche, LLP, Newport Beach, California.)
Borrowing Against Stock Portfolio:
The following example shows how investment earnings can exceed the cost of marine financing:
In this case we are assuming a rate of 8.5% fixed for 20 years on a loan of $100,000, requiring a monthly principal and interest payment of $867.82.
The interest cost of this loan over an anticipated life of 60 months is $40,196.30.
If you are in the 30% tax bracket, this interest expense deduction will save you $12,058.91, effectively reducing the cost of the loan to $28,137.39.
This same $100,000, if invested earning 9%, would grow to $137,703.68 (after tax) in the same time period. Tax-free municipal bonds yielding 6% could earn $34,885.02 over 60 months. More aggressive investments could obviously make earnings even more attractive.
(Note: The above example is used to help explain the advantages of marine financing, and is not a guarantee of what is available in the market at any particular time. Consult with a financial advisor about your own personal tax situation.)
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