Are you thinking about buying a yacht and living the ultimate dream? If so, you might benefit by leaving your hard-earned cash in your investments intact and taking advantage of the super-low interest rates currently being offered for yacht financing. Most people believe that banks have changed their policies and placed luxury buying on the back burner…which is simply not true. In the advent of our financial times, lenders simply want to ensure that they are making good business decisions.
Financing Tips for US Yacht Buyers
Here are some tips for US yacht buyers which might be worth considering if you are seriously in the market to purchase a yacht:
- Find a responsive loan broker who specializes in yacht lending – one who has access to a wide variety of lenders and programs. If your finances are complex, a special lender might need to be contacted. Your yacht broker is a valuable source for knowing who to recommend.
- Have your financial details and reports; including recent and current tax returns together and readily available.
- Qualify for your loan at the same time while looking for a yacht. Don’t set yourself up for disappointment by finding the ideal yacht only to find that you don’t qualify for it, or lenders have certain rules for lending on various yachts (most banks won’t lend on yachts which are older or un-insurable). Once you know which yacht works for the lenders…focus on finding the best choice and value. Once you find a good candidate, the lender will require a signed purchase agreement to verify their commitment.
- Talk to your accountant and legal counsel about the best ways for you to own the boat – whether a corporation, limited liability company or personally – and structuring to allow for tax benefits (including writing off as a second home or chartering the yacht), Ensure that these recommendations jibe with needs of the lender! Again, your yacht broker can recommend specialists to assist with ownership strategy.
Check out a current yacht finance update offered by my close friend and professional colleague – Phil Bartholomew of Seacoast Financial in Fort Lauderdale , Florida. Phil knows this business well, offers the best service possible and has access to a variety of lenders and programs:
August 2012 Yacht Finance Update
Simply put, marine lenders are actively seeking applicants and consistently lending money to those who qualify. There are over a dozen U.S. banks with departments dedicated to marine lending. All offer multiple menu-based loan products and permit significant customization for higher loan amounts. The banks’ appetites for buyers and boats vary. Most employ brokers like me who advise the customer, do the preliminary financial analysis and underwriting, match the applicant with the bank, facilitate the transaction and ultimately close the deal.
Loan underwriting decisions are based on the applicant’s credit history, personal cash flow, available liquidity and the sale price and estimated value of the vessel. Up to 85% of the vessel’s purchase and state sales tax or estimated value may be financed. Value is determined through industry valuation guides, marine survey reports and prior sales comparables.
Presentation of Federal income tax returns, pay statements and bank and investment account balances are standard requests. Business owners and self-employed applicants are expected to show business returns and financial statements as well.
Right now, marine interest rates are generally in the 4% range with a typical loan term and amortization of 20 years. Depending on the loan size and the borrower’s planned length of vessel ownership, multiple loan options permit varying levels of customization and flexibility. In almost all cases, the loan is secured solely by the vessel.
What types of marine loans are available?
Generally speaking, there are four types of loan programs offered by marine lenders: fixed interest rate, variable interest rate, hybrid, and interest-only.
Fixed rate loans: the interest rate remains fixed throughout the term. The amortized principal payment plus the interest remains the same and the payment will not fluctuate for the life of the loan. This type is more appropriate for the consumer anticipating longer-term boat ownership (4 to 5 plus years) and preferring to lock the interest rate.
Variable rate loans: the Adjustable Rate Mortgage (ARM): the interest rate is based upon certain floating indexes and will change with the rise/fall of the index. A bank margin is added to the indexed rate to calculate the effective rate of the loan. A current example is a loan based on the .25% LIBOR rate, plus a 3.5% margin, which added together equals an effective rate of 3.75%. The margin will not fluctuate but the index can. For example, should the 30-day LIBOR index rise to 1%, the 3.5% margin will cause the effective rate to become 4.5%. Loan repayments are adjusted annually.
The 30-day LIBOR and 1 year LIBOR indexes are most commonly used in yacht financing. Current index rates can be viewed on websites like BankRate.com .
Variable rate loans are often used by borrowers with shorter-term ownership plans and those willing to realize significantly lower interest rates in return for accepting the risk that their payments could fluctuate.
Hybrid loans: a fixed interest rate for a certain period, usually three, five, seven or ten years, then converting afterward to a variable interest rate plus margin for the remainder of the term. Because of the more abbreviated fixed interest term, the interest rate is often a quarter-to-a-half per cent lower than longer term fixed rate loans. Hybrids are popular with buyers having a specific length-of-ownership in mind and/or those looking to enjoy the lower interest rate for the shorter term and open to refinancing (if necessary) further down the road.
Interest-only loans: as the name implies, only interest is paid during the term of the loan and the principal is repaid at the conclusion of the term. Minimum loan amount: $300,000. Interest may be calculated using either fixed or variable interest rates. Most banks offering the interest-only option require a higher down payment (generally 30-40% down) and extend terms of 3-7 years before repayment of principal (a “balloon”). Some banks will permit an interest-only loan to convert to a principal-and-interest loan at a prearranged time.
Interest-only loans are used by borrowers who want the lowest monthly repayment possible and, because of their compensation schedule (perhaps quarterly distributions or annual bonuses) and/or the planned sale of the boat, expect to pay down or pay off the principal in the allotted time.
Make your search for the right yacht for your and your family needs the best decision of your life, enhancing it with an excellent financing program!
Contact Andy Kniffin, President of Ak Yachts for more information and assistance with all your yachting needs! (954) 292-0629, firstname.lastname@example.org Contact Phil Bartholomew at Seacoast Finance at (954) 303-2404, email@example.com.